Posted on 27 Jun 2022
Ansteel Iron & Steel Group (Ansteel), China's second largest steel producer behind Baowu Steel Group, is eyeing a 'merger' with Lingyuan Iron & Steel Co. (Lingsteel), a maker of mostly long steel products. Both Ansteel and Lingsteel operate from China's northeast province of Liaoning.
In a regulatory filing Wednesday, Shanghai-listed Lingsteel said that discussions had begun with Ansteel about a 'reorganization' that may lead to a change of ownership. Lingsteel, established in 1994, is currently majority owned by the city government of Chaoyang, in western Liaoning.
Lingyuan's statement did not give details regarding why the two steelmakers were in discussions about a 'merger'. According to World Steel Association data, during last calendar year Lingsteel produced 5.41 million tonnes of crude steel, down from 5.89 million in 2020. Whether this reduction resulted from the company's efforts to meet Beijing's requirement for all steelmakers to control output last year, or for some other technical or business season, is unknown.
Ansteel's crude steel output soared last year, the WSA data show – to 55.65 million tonnes from 38.19 million in 2020 – chiefly because in August last year, it gained majority control Bengang Group (Bengang), another state-owned mill in the province, also through a 'merger'.
Significantly, the Liaoning provincial government's State-owned Assets Supervision and Administration Commission (Bengang's then owner) transferred a controlling 51% share in Bengang to Ansteel free of charge, as Mysteel Global reported.
By taking over Lingsteel, Ansteel can expand its market share, and if realized, will consolidate its status as the world's third largest steel producer after China Baowu Group and ArcelorMittal or China's second-biggest steel producer, a Shanghai-based analyst remarked.
M&As have become one of the main themes in China's steel development since the 13th Five-Year Plan period (2016-2020) and have been given importance in the 14th Five-Year Plan period (2021-2025) as a means for the country to enhance the concentration level in its domestic steel industry, Mysteel Global noted.
According to a document the Ministry of Industry and Information Technology issued in 2021, the industrial concentration of China's top five steel companies should reach 40% by 2025, and that of the top ten should be 60%. Last year, the contribution of the top ten Chinese steelmakers to the country's total steel production increased to 41.5%, up from 39.2% of 2020, as reported.
In the circumstances, Ansteel has set its own strategic objectives it wants to achieve during the 14th Five-Year Plan period – to raise the annual production capacity of crude steel and iron ore concentrates to 70 million t/y and 50 million t/y respectively.
"Once the merger is completed, Ansteel's annual production capacity will increase further to nearly 70 million t/y," the Shanghai analyst said. "Currently, its production capacity is 63 million t/y after taking over Bengang last year," she said.
Moreover, with both Ansteel and Lingsteel located in North China's Liaoning province, this action will further consolidate the former's position in the important northeast China market, Mysteel Global noted.
Source:Mysteel Global
