On 26 Jun’16, China’s two steel biggies, Baosteel and Wuhan Steel announced their merger plans sending a positive wave in Chinese steel market. The total capacity of merged giant will stand at 73 MnT.
Baosteel is country’s second largest steel manufacturers which had annual steel output of 35 MnT in 2015. Whereas Wuhan Iron and Steel Company (WISCO) ranks sixth in the country with 26 MnT of steel output reported last year.
The move is a response to the central government’s supply end reform policy in several sectors, including shipbuilding and coal. It aims at improving efficiency and reducing competition and overcapacity in Chinese steel industry.
The steel industry in China is currently in the middle of a crisis. WISCO reported a net loss of RMB 7.5 billions (USD 1.12bn) in 2015, while Baosteel’s net profit dropped by 82% to RMB1.01 billions (USD 152 millions).
The Chinese government has planned to reduce its overcapacity in steel sector by 45 MnT this year and by 150 MnT by 2020.
What will Happen after Merger?
Competition to World’s Biggest Steel Manufacturer
With the two companies merging together, their total steel output stood at 61 MnT for the year 2015, just following 97 MnT of ArcelorMittal, world’s largest steel manufacturer.
Meanwhile, production will keep increasing when Baosteel’s Zhanjiang project is started up. Thus, it is likely that the merged giant may surpass ArcelorMittal in future.
Largest HRC Manufacturer in China
Baosteel Group has 8 HRC rolling mills, with an annual 31.35 MnT of production capacity. WISCO has 5 mills, with 14.63 MnT of capacity. After merger, the giant will have 12 HR rolling mills, with 45.98 MnT of capacity, ranking No.1 in China.
Country’s Largest Auto Sheet Producer
Baosteel is country’s No.1 and WISCO is No.2 auto sheets manufacturers in China. Both the companies combined auto sheets output was 10.63 MnT in 2015, which is 50% of the country’s total auto sheet production. Also in future both the companies’ auto sheets output is likely to increase as Baosteel’s new project at Zhanjiang and WISCO’s project at Fangchenggang port has been put into operation.
Optimization of Product Mix
Baosteel and WISCO’s products mix includes HRC, medium plate, CRC, galvanized sheet, tinplate, silicon steel, coated etc. While Baosteel is the largest stainless steel enterprise in China, WISCO is one of the four heavy rail producers in the country. The move will optimize the product mix of the two, and resolve the duplicated construction and overcapacity of high-end products.
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