China steel giants plan merger in face of global glut

Beijing has vowed to eliminate 100-150 million tonnes of capacity by 2020

Two of China's biggest steelmakers are planning to merge, they said, as the industry faces a global glut that has hammered producers worldwide.

Baosteel Group, China's second-largest steelmaker, is "planning a strategic restructuring with Wuhan Iron and Steel Group", another giant, both companies' listed units said in separate statements to the Shanghai stock exchange yesterday.

But the restructuring plan had not yet been confirmed, the statements said, without giving further details.

The two firms rank fifth and 11th respectively in the world.

Baosteel produced 36.1 million tonnes of steel last year, its website says — more than Brazil and three times more than Britain, according to the World Steel Association, whose ranking shows that if it was a country it would be eighth in the world.

But Chinese steel demand has slumped as its economic growth has slowed and the global steel industry is assailed by huge overcapacity, which has plunged manufacturers into losses from Asia to Europe to the US, and seen political rows and accusations of dumping.

Shanghai-based Baosteel's net profit plummeted 83% to 1.0 billion yuan ($150 million) last year, while Wuhan Steel lost 7.5 billion yuan, compared with a 1.3 billion yuan net profit in 2014.

Beijing has vowed to eliminate 100-150 million tonnes of capacity – out of a total of 1.2 billion tonnes – by 2020.

"The merger of Baosteel and Wuhan Steel fits with the government strategy of improving efficiency and reducing competition and overcapacity," Xu Xiangchun, chief analyst at consultancy Mysteel Research, told Bloomberg News.

"With these two leading the effort there might be more mergers ahead," the analyst added.

Wuhan Steel chairman Ma Guoqiang denied speculation of a merger at a shareholder meeting earlier this month, the Beijing News reported.

Trading in both firms' shares was suspended on Monday.