BEIJING -
European steel magnate Arcelor's plan to make an
equity investment in China's Shandong Laiwu Iron and
Steel Co has entered a crucial stage.
Industry experts hold that similar foreign
acquisitions may follow later, and in turn trigger
a wave of mergers and acquisitions by
multinational steel giants in China's iron and
steel industry. Besides Arcelor, steel giant
Mittal, which entered China prior to
Arcelor, has already acquired
a 37% share of Shenzhen-listed Hunan Valin Steel and
reportedly also plans to purchase a 49% equity in
the Baotou Iron and Steel Company.
The
increasing cases of acquisition of Chinese steel
companies by their foreign counterparts show that
China's steel market is promising in foreign
investors' eyes, which is quite different from the
domestic perception within China. Experts in China
widely believe that the domestic steel market is
saturated and the production capacity of steel
exceeds demand currently.
However, quite a
few foreign steel companies feel that in the
process of industrialization, a large amount
consumption of steel is inevitable in China. At
present, China's average amount of steel
consumption per capita is much lower than that of
developed countries. Therefore, there is still a
large space for further development of China's
steel industry, which is the fundamental reason
foreign steel companies have been carrying out
acquisitions actively recently.
Besides,
China's domestic steel industry is undergoing
restructuring at present, which provides a good
opportunity for foreign steel enterprises to
acquire Chinese steel companies at a low
acquisition cost. In fact, the restructuring of
Chinas steel industry has already started prior to
the entry of foreign capital. There have been
active mergers and acquisitions among Chinese
domestic steel enterprises recently, such as the
formation of Anben Steel.
China Securities
Journal quoted Tian Shuhua, an analyst with China
Galaxy Securities Research Center, as saying that
the industrial concentration of China's steel
industry is relatively low, which intensifies the
competition in the domestic steel market and
weakens the competitiveness of Chinese steel
enterprises in the international market.
Under this situation, it is necessary for
Chinese steel enterprises to accelerate their pace
in restructuring, changing the old production
pattern of small scale and low industrial
concentration and production specialization. By
restructuring and forging large-scale steel
enterprises with economies of scale, Chinese steel
companies are able to enlarge their production
capacity, lower production costs and improve their
international competitiveness.
Steel
enterprises in developed countries and regions
have completed domestic restructuring already, and
are now taking an active part in international
mergers and acquisitions. Chinese steel
enterprises are prone to become the target of
multinational enterprises' acquisition efforts in
the future if they lag behind in this field, Tian
noted.
