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Baowu on steel capacity concentration in Northwest China

Date: 2020-12-08
Views: 43

Article source: Mysteel

China Baowu Steel Group (Baowu), China’s and also the world’s top steel producer in capacity, has been taking no break in its expansion in capacity and inner strength enhancement at the same time, with the latest move to solidify its footing in Northwest China via acquiring existing steel mill and iron ore mines, Mysteel Global noted.
On November 25 Baowu, via its subsidiary in Northwest China’s Xinjiang, Xinjiang Tianshan Iron & Steel (Tianshan Steel), took over about 77% stake in Yili Iron and Steel Group (Yili Steel) at Yuan 1.45 billion ($2.2 million) from the latter’s 31 individual shareholders, shortly after its acquisition of the full ownership of Xinxing Ductile Iron Pipes Xinjiang Co (Xinxing Ductile) at a price of Yuan 2.2 billion on November 19, according to the related official statements.

Tianshan Steel is the joint venture between Baowu and its two other subsidiaries including Bayi Steel, set up in April, serving as a steel asset acquisition and management arm of Baowu in consolidating the blast-furnace steel capacities in Xinjiang, Xinjiang Bayi Iron & Steel (Bayi Steel), Baowu’s other Shanghai-listed arm, explained in a notice on November 24.

Bayi Steel is holding a 20% stake in Yili Steel.

Tianshan Steel targets to accomplish the mission in three years relying on the market forces and economic means, thus enabling Bayi Steel to raise its steel capacity utilization, optimize resource distribution, reduce logistics costs and unnecessary pricing competition among local producers, and to safeguard Bayi Steel’s local market share, Bayi Steel elaborated.

In five years, Tianshan Steel and Bayi Steel will resort to various means such as consolidation and asset swaps to eliminate their internal competition in steel operations. 

The Xinjiang authorities approved a series of new steel projects around 2007-2008, which led to serious overcapacity in steel due to the limited demand from the local market or in general in Northwest China due to the comparatively backward regional economy, while steel sales to other regions is lacking pricing competitiveness when the logistics costs are added, Mysteel Global understands.

“Tianshan Steel has taken on the responsibility of efficiently dissolving the excess steel capacity in Xinjiang, nurturing a fair and orderly local steel market, and it has been progressing according to the plan in consolidating the steel mills in Xinjiang,” Bayi Steel stated in another release on November 25.

Bayi Iron & Steel became Baowu’s subsidiary in 2007, boasting about 10 million tonnes/year of steel capacity, and Xinxing Ductile is the one of the two manufacturers of earthquake-resistance and high-strength reinforcement bars in the Xinjiang area, accounting for a 30% steel market share in Xinjiang, according to the companies. 

Yili Group is with about 2.2 million t/y molten iron capacity, is an integrated mill with its own iron ore mining operation, according to the company’s website.

“Baowu’s all-out integration of steel enterprises in Xinjiang is fast and unique, mainly because of the autonomous region’s geographical location, as its local steel market is rather independent and exclusive,” Xu Xiangchun, Mysteel’s senior analyst from Beijing office, commented. 

“Most of steel mills in Xinjiang are small in scale, making the whole integration easy to fulfil, and Bayi Steel, the largest steel mill in the region, is no doubt the ideal producer to take all the others in,” he elaborated, adding, “in other parts of China, such a blanket takeover is unlikely to realize.”

Baowu’s latest action in Xinjiang is almost in parallel with its internal strength enhancement, as on November 20 Baowu renamed Shaoguan Iron & Steel Co, one of its subsidiaries in South China’s Guangdong province, as Central South China Iron & Steel Co (literal translation) or Zhongnan (in pinyin) Steel, which is meant to consolidate the group’s steel assets management in different regions of China for higher efficiency, as reported. 

As of November, Baowu already boasts a combined steelmaking capacity at 110 million t/y, as Mysteel Global calculates, based on the available data, achieving the capacity target at 100 million t/y one year in advance, but it seems that Baowu’s domestic mergers and acquisitions in China’s steel industry will proceed for efficiency and competitiveness in the long run.

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