Posted on 12 Apr 2021
China’s ferrous community seems to be in a booming period, as on top of the domestic steel price surges since late March, stocks of both Angang Steel Co and Bengang Steel Plates Co, the Shenzhen-listed arms of the top two steel mills in Northeast China, surged 5.3% and 10% on day on April 7.
The rallies were in response to the renewed hope that Anshan Iron & Steel Group (Ansteel) and Bengang Group (Bengang) may finally become one family after the initiative since 2005.
Investors of holding onto these two steel stocks may finally be paid off their faith if the long-awaited merger finally materializes even though no progress have been made officially after the incorporation of new entity - Anben Iron & Steel Group - on August 16 2005.
This time, the market expectation may not be wishful thinking, after all, as the Liaoning provincial government did mention its intention to help complete the merger of these two steel mills, both headquartered in the province, as part of its efforts to optimize the state-owned assets during its 14th Five-Year Plan period (2021-2025) when it released its development plan by 2025 and 2035 on April 6.
Officials from Ansteel denied having received any formal notification from the provincial government, though one disclosed that Ansteel and Bengang have started comparing their finished steel product structures.
An official from Bengang, however, confirmed the news on integration, noting that a few related departments from both the steel mills have kicked off communication regarding daily operation.
Ansteel is China’s fourth largest steelmaker in 2019 with 39.2 million tonnes of crude steel output, according to data of China Iron & Steel Association, with major products being carbon steel flats including hot-rolled and cold-rolled coils, galvanized and color-coated steel for auto and electrical home appliances manufacturing.
Bengang produced 16.1 million tonnes of crude steel in 2019 with similar finished steel product structure as Ansteel.
Dust is settling, but why now?
It has been 16 years since the merger of the two was first heard and they are also the first among the Chinese steel mills to talk about mergers and acquisitions. Yet, China Baowu Steel Group (Baowu) and HBIS, the two latecomers, have all been up and running, while Anben has been existing as a name since 2005.
There have even been suggestions along the years that Anben may well just exist in name as once Ansteel was speculated to be acquired by Baowu, and Bengang by Fosun Group, the majority shareholder of Nanjing Nangang Iron & Steel United Co.
To date, the largest obstacle to the merger is the different ultimate ownership, though both Ansteel and Bengang are stated-owned, as the former is owned by China’s State-Owned Assets Supervision and Administration Commission (SASAC) while the latter is owned by the Liaoning provincial government, and Bengang, for example, has a joint venture with South Korea’s Posco.
Ansteel also has a joint venture with Japan’s Kobe Steel producing high-strength automotive sheet.
Therefore, all the happenings recently are “just about the timing” a Beijing-based analyst commented.
He noted that the delay in merging has given the two the opportunity to learn from successful cases presented by Baowu, SASAC’s No.1 steel asset, which completed the acquisition of Magang (Group) Holding, Taiyuan Iron & Steel Group Co and Shandong Iron & Steel Group (Shangang) over 2019-2021, all the targets owned by their respective provincial authorities.
Ansteel and Bengang have around 800,000 employees in total, with about 100,000 employees in the core steel businesses while the others are working in the affiliated and support subsidiaries such as hospitals, childcare, canteens and such, as China’s top steel mills are not only serving the steelmaking function, but more like a steel town with all the social facilities.
Meanwhile, Ansteel has been reportedly reviewing its assets and separating its core steel business from other non-steel facilities, while Bengang has commenced the move too, he noted, all to facilitate the merger.
“There are role models to refer to in such mergers, and both Ansteel and Bengang will offload some burdens to make merger less challenging, so we will probably be able to witness the successful joining forces of the two either this year, or next year at the latest,” he projected, full of confidence.
Steel for automotive manufacturing, source: Ansteel website
The merger of Ansteel and Bengang is making perfect sense to the Chinese steel market sources too, as the two are targeting Northeast China for their steel sales with similar steel products, and both also own their own iron ore mining assets in the province.
The marriage will also help them to solidify the regional market share, eliminate unnecessary competition, optimize their steel product structure, and pave way for their efforts in environment protection and carbon emission reduction, Mysteel Global understands.
Northeast China has been struggling with low GDP growth in the past many years, and as of 2020, Liaoning’s GDP totaled Yuan 2,511.5 billion ($383.4 billion), up only 0.6% on year.
Source:Mysteel Global
