China Business

Dec 23, 2005

More mergers seen in steel industry

NANNING - China's third largest steelmaker, Wuhan Iron and Steel Group, and Liuzhou Iron and Steel Group, the largest steelmaker in China's southern Guangxi Autonomous Region, signed an agreement on reorganization here on December 19.

Under the agreement, Liuzhou Steel will invest all its net assets, valued at 6.2 billion yuan, and Wuhan Steel will invest 6.5 billion yuan (US$804.85 million) to jointly set up the Wugang-Liugang Group Co Ltd. The new company will build modern iron and steel

works in Fangchenggang, on the coast of Guangxi, with an expected annual output of over 10 million tons.

This is a new major reorganization move among major Chinese steel makers, following the consolidation of Anshan Steel and Benxi Steel to form the Anben Group several months ago.

Owing to overcapacity, China's iron and steel industry has ended its high-profitability era and a wave of mergers and acquisitions is now underway in the industry. The output capacity of the domestic steel industry now exceeds market demand by 120 million tons a year. As a result, steel prices have fallen sharply this year.

China has issued a new industrial policy concerning the iron and steel industry. It will be implemented starting in January 2006, and encourages domestic steelmakers to conduct trans-regional mergers and acquisitions.

(Asia Pulse/XIC)

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