Mergers and acquisitions since 2016 have allowed the Chinese Baowu Steel Group (Baowu) to become the world’s leading steel producer, and have also achieved their ambitious target of 100 million tonnes of steel per year a year ahead of schedule, and the merger and takeovers will become the main topic. Chen Derong, the company’s chairman of the board, sent a clear message about the company’s next five-year development.
Mergers and Acquisitions Are Critical to the Consolidation of China’s Steel Industry
Baowu, while producing 10 times the annual steel production in Japan, only accounts for about 10% of China’s total steel production, and thus increasing industrial concentration is essential for a self-disciplined and sustainable steel industry. Chen noted.
“100 million tonnes per year is not a destination, but a new starting point for us in the context of supply-side structural reform in China’s steel industry,” Chen said in an online conference.
Over the next five years, Baowu will maintain a high pace of mergers and acquisitions and restructuring to further increase its market share and influence both domestically and abroad, and to support the country in upgrading the domestic steel sector from the status quo of “small size” , scattered and low level, ”Chen said.
Among the many goals, over the next five years, Baowu will consolidate and restructure steelmakers in Xinjiang, northwest China through its local subsidiary, Bayi Iron & Steel, and as a final act, Baowu signed an agreement with Xinxing Cathay International on September 4. According to reports from Baowu, Group Co, a leading Chinese manufacturer of high-strength pipes headquartered in Beijing but with steel production in Xinjiang, will collaborate on optimization.
Mysteel Global understands that Xinjiang, a fairly inland region of China, suddenly faced overcapacity in its local steel industry around 2007-2008 due to over-endorsement by local authorities of many steel projects that ignored limited local steel consumption potential.
In addition, China, which accounts for 55% of global steel consumption, should expand its steel value chain overseas rather than 90% of domestic steel, he added.
The entire supply chain must “go down,” Chen said, including design and engineering, investment in overseas steel capacity, and refining and distribution, especially in countries along the Belt and Road route.
Baowu has been considered a leader among Chinese steelmakers in the past two decades, a boom for China’s steel industry, and the state-owned steel giant has taken its role and social responsibility very seriously, working with the Chinese authorities to increase the concentration of the country’s steel industry, Mysteel Global notes.
Baowu’s M&A journey over the past five years
All forward-looking remarks were made by Chen on the very day that Baowu officially became the de facto controller of Chongqing Iron & Steel Company (Chonggang), located in southwest China, in a year as a result of the transfer of interest from Four Rivers. Equity Investment Management Co, a consortium funded by Chinese and overseas funds, to help Chonggan get through his rough days on the brink of bankruptcy in 2017, Mysteel Global learned from Chonggan’s statements.
As such, Chonggang became the last Chinese steel mill to join the large Baowu family, another achievement for Baowu in consolidating domestic steel producers since December 2016, when Baosteel Group completed a significant merger with Wuhan Iron & Steel Group. to the new Baowu plant with a capacity of 70 million tons of steel per year.
Since then, Baowu has acquired Magang (Group) Holding (Magang) for 20 Mtpa in June 2019, followed by 12.9 Mtpa in August of this year Taiyuan Iron & Steel Group Co (TISCO), which also is China’s second largest stainless steel manufacturer headquartered in Shanxi province in northern China.
Mysteel Global notes that several mergers and acquisitions of state-owned steel mills in China have enabled Baowu, or the original Baoteel Group, to expand their steelmaking capacity to over 110 million tonnes /year in about five years at reasonable cost and with very green means. [: ]