Posted on 21 Oct 2022
Shagang Group (Shagang), China's third-largest (and a hopeful runner-up) steel producer in terms of crude steel output, has advanced its merger and acquisition (M&A) strategy by taking 60% stake in Nanjing Iron & Steel United Co. (Nangang) from Chinese conglomerate Fosun International, according to the official statements released by the three companies on Wednesday night.
The deal will be sealed by up to Yuan 16 billion ($2.21 billion), and Fosun will no longer hold any stake in Nangang should the transaction is to be completed, according to the company announcements.
Established in 1958, Nangang is based in East China's Jiangsu province and produced a total of 11.58 million tonnes of crude steel in 2021, ranking the 22nd among Chinese steel enterprises, according to the data from World Steel Association (WSA).
As China's leading electric-arc-furnace steelmaker, Shagang is also headquartered in and operates from Jiangsu.
The WSA data showed that Shagang's crude steel output totaled 44.23 million tonnes in 2021, ranking third in China, only after Baowu Steel Group (Baowu) of 119.95 million tonnes and Ansteel Iron & Steel Group (Ansteel) of 55.65 million tonnes.
After taking 60% stake in Nangang, Shagang is expected to see its combined steel production capacity increase to 55.81 million tonnes/year, which may make the company surpass Ansteel to become the second-largest steel producer in China and the fifth-largest globally.
The M&A is also conducive to enhance the efficiency and concentration of China's steel industry – a goal set by the central government to optimize the steel industry structure, Mysteel Global learned from market insiders.
"Shagang's latest initiative is in line with Beijing's calls for high-quality development of domestic steel industry by striving toward higher industrial concentration. Meanwhile, by doing so, Shagang is also enhancing its overall strengthen and competitiveness. And that's where Chinese steel majors should be heading for in years to come," commented Wang Jianhua, Mysteel's chief analyst.
Moreover, Wang also believed the M&A will be beneficial to the development of steel market in Jiangsu. "Since Shagang and Nangang are both based in Jiangsu, this merger will help consolidate their steel capacity in the region and contribute to the development of local steel sector – a win-win situation for all," he said.
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 notes.
And for this year alone, there've been 9 M&As among Chinese steel majors so far, according to Mysteel's tracking.
For example, Ansteel has been proceeding with its merger of Lingyuan Iron & Steel in Northeast China's Liaoning province, and Baowu has just taken over 51% of stake in Xinyu Iron & Steel Co, a major steel producer in East China's Jiangxi province, as Mysteel Global reported.
Source:Mysteel Global
