Posted on 15 Dec 2021
China's steel industry consolidation has continued to maintain a healthy pace in November and December, with latest developments indicating that mills are trying to explore new non-traditional routes in acquiring assets.
China's steel mills clinched several deals this year, as producers try to bolster their profit margins in an ever-growing competitive market and look for opportunities to counter rising environmental protection costs amid a big push to reduce carbon emissions.
Industry consolidation will also likely aid the sector to have a bigger influence in price settlement with raw material suppliers and downstream steel users.
Industry sources told S&P Global Platts that consolidation in China's steel sector is expected to accelerate in the foreseeable future, given several potential mergers and acquisitions within sight.
With several deals already completed this year or in the works, China's steel industry is apparently inching towards a target set by the government that would bump up the ratio of the country's top 10 steelmakers' crude steel output to total national output to 60% by 2025.
China's top 10 steelmakers currently account for around 43% of the country's production, according to company data.
Recent deals
In November, Qian'an Jiujiang Wire Rod completed two transactions. It acquired Hebei-based Qian'an Yayi Iron & Steel, and Fangchenggang Jinxi Section Steel in southern China's Guangxi province, company announcements and data showed. Qian'an Jiujiang Wire Rod is headquartered in northern China's Hebei province.
The greenfield integrated Fangchenggang project remains in the developing stage, with a designed crude steel capacity of about 10 million mt/year. The project is based on capacity swaps, which means Qian'an Jiujiang Wire Rod will need to buy an equivalent capacity of 10 million mt/year from other steelmakers to start construction on the new project, according to company documents.
It remains unclear when the Fangchenggang project will be commissioned. When the new project comes on stream, Qian'an Jiujiang Wire Rod will have about 26 million mt/year crude steel production capacity, according to Platts calculations based on company data.
In November, Hebei-based Puyang Iron & Steel purchased 0.53 million mt/year of pig iron capacity from a smaller mill in the same city, a transaction that followed its acquisitions of Xingtai Iron & Steel in July and Hong Rong Iron & Steel in August.
In December, Shagang Group, headquartered in Jiangsu province, purchased 1.39 million mt/day of pig iron capacity from a small mill in the same province, according to company data. This deal pushed up Shagang Group in the list of China's top steel producers, making it the country's third-largest steelmaker. In August, Shagang Group had acquired two mills in Henan province with a combined crude steel capacity of around 3 million mt/year.
Potential transactions
Shagang Group and Fangda Steel Group, two privately-owned steelmakers, have been in talks for a mixed ownership deal with state-owned Anyang Iron & Steel (Angang), industry sources said.
Angang is based in Henan province and is ranked as the 21st largest steelmaker in China, while Fangda Steel is the eleventh-largest steelmaker in the country.
It is yet to be seen which company Angang would eventually sign a mixed ownership agreement with.
China's top 10 steelmakers' crude steel output will increase to around 44% of the country's total steel production, from 43% if either of the two companies manage to take over a portion of Angang's assets.
Meanwhile, the world's largest steelmaker Baowu Group has pledged to expand its crude steel capacity from around 150 million mt/year to 200 million mt/year by 2025 through more acquisitions, according to the company.
Shougang and Hebei Iron & Steel were recently urged by Hebei authorities to take the lead in consolidating the province's steel industry within the next three years.
China's steel industry consolidation: major acquisitions in 2021
Source:Platts
