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Anben merger a watershed for
Chinese steel
BEIJING -
Anben Iron and Steel Group (ABIS), a giant new
steel company formed though the merger of the two
biggest iron and steel enterprises in northeast
China, was inaugurated at a ceremony held in
Shenyang, capital of Liaoning province, on August
16.
The merger of Anshan Iron and Steel
Group Corporation and Benxi Iron-Steel (Group)
Limited Liability Corporation constituted a
significant event in the growth of China's steel
and iron industry, said Li Keqiang, secretary of
the Liaoning Provincial Committee of the Communist
Party of China (CPC) at the ceremony. It will be
beneficial to improve the concentration level of
China's iron and steel industry and to promote its
sustainable development, he said.
"The two
companies are among the most important steelmakers
in China and play a big role in the market. The
merger will greatly improve their competitiveness
and position in the international market," added
Zhang Guobao, vice-minister of the National
Development and Reform Commission (NDRC), the
country's top economic policymaking body.
The formation of Anben Steel will be
handled by a committee headed by Liu Jie, general
manager of Ansteel, and Zhang Yingfu, board
chairman of Bensteel. Ansteel is the nation's
second-largest steelmaker, based in Anshan. Last
year, its output reached 11.3 million tons and
profits were 10.8 billion yuan (US$1.33 billion).
Bensteel's output was around 7 million tons last
year. The combined production capacity of the
Anben group would be a match for industry leader
Baosteel, according to Liu Jie.
There are
at least two good reasons for the merger,
according to experts: raw materials and marketing.
Both Ansteel and Bensteel hold rich iron ore
reserves, which account for a quarter of the
nation's total. The merger would give them more
bargaining power while purchasing raw materials
and control costs. The other reason is the
marketing of rolling steel, a premium product. The
two firms' combined output is around 10 million
tons, even higher than that of market leader
Baosteel, which would give them an advantage.
Moreover, the two companies could share
technology, research and marketing channels, said
Liu.
The new iron and steel group will
unify the two firms' management and development
strategy, and stress technological innovation,
product research and development and marketing
strategy at its member enterprises. The group aims
to become a world-class iron and steel group with
an annual production capacity of over 30 million
tons by 2010.
Feng Guisheng, an economist
at the Liaoning Academy of Social Science,
suggested that Anben Steel may tie up with other
state-run and private steelmakers in Liaoning
province to further improve its economies of
scale. It has been rumored that Liu Jie has an
aggressive plan to unite all eight big steel
plants in northeastern China, forming a gigantic
steel group.
ABIS a response to
government plans
The establishment of ABIS
is only a tiny part of the ongoing combination and
reorganization moves of China's iron and steel
enterprises. Less than one month ago, the NDRC
issued a steel industry development policy which
encouraged domestic steelmakers to form bigger
entities, each with an annual output touching 30
million tons by 2010. According to the policy,
China will endeavor to promote the acquisition,
combination or reorganization moves of
transregional iron and steel enterprises.
By 2010, according to the policy, China is
expected to have one or two iron and steel groups
with a combined annual capacity of over 30 million
tons and several large enterprises with production
capacity in the tens of millions of tons. Besides
the Anshan-Benxi merger, other reorganization
projects are being planned, such as the merger of
the Capital Iron and Steel Company and the
Tangshan Iron and Steel Company in northern China;
the acquisition moves of Baoshan Iron and Steel
Company in eastern and southern China; and the
reorganization process of the Wuhan Iron and Steel
Company in central and southwestern China, said
Luo Bingsheng, vice president of the China
National Iron and Steel Association (CISA).
Luo said some new situations are emerging
in China's iron and steel industry such as the
widening gap between enterprises in profits and
competitive strength. CISA statistics noted that
in the first half of this year, 68 large and
medium enterprises reported 49.233 billion yuan
(US$6.1 billion) of profits, with top 10 earning
profits of 33.582 billion yuan, accounting for 68%
of total profits for the sector. This shows that
the iron and steel industry is further shifting to
large enterprises with competitive advantages,
acknowledged Luo. "As the [smaller than optimal
firm size has been] hindering the growth of
China's iron and steel industry, to promote merger
and reorganization of transregional enterprises
has become a top issue for the industry," he said.
Global industry takes note
This
trend has been noticed by international iron and
steel circles. A report recently issued by
US-based World Steel Dynamics (WSD) said China's
iron and steel industry is in a transitional
period, which is expected to see a large amount of
integration within the industry. The report
predicts that when this period of integration is
completed by 2010, international iron and steel
enterprises boasting an annual production capacity
of 40-50 million tons will emerge in China.
China's iron and steel industry is playing an
increasingly vital role in the international
market with more and more Chinese iron and steel
enterprises entering the list of the world's most
competitive iron and steel giants, said Peter
Marcus, an analyst with the WSD.
China's
steel output last year was around 270 million
tons, statistics from the China Iron & Steel
Association (CISA) show. Total production reached
100 million tons in 1996 and the country has been
the world's No 1 steelmaker for the past nine
consecutive years. However, production is mostly
of crude steel and many high-end products are
still imported. "The motivation behind the merger
is the desire to improve the competitiveness of
steel plants by blending good management with that
of other plants and giving the resultant company a
much better international standing," said Luo
Bingsheng, vice-chairman of CISA.
International steel giants have set up
joint ventures or bought out Chinese steel
companies in recent years. The Netherlands-based
Mittal Steel, the world's largest, bought about
37% of Central China's Hunan Valin Iron &
Steel Group Co in January; and is said to be in
negotiations with South China's Kunming Steel.
(Asia Pulse/XIC) |
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