Laiwu Iron & Steel Group (Laigang) and Jinan Iron & Steel Group (Jigang) confirmed on July 27 that they would merge to form a new steel corporation under the leadership and coordination of Shandong's provincial government. The new body will be the number two steelmaker after
Baosteel in
China with 30 million tons per annum
production capacity.
Along with the consolidations and mergers among global steel giants, similar actions are also frequently occurring in
China. Chinese government hopes top steelmakers such as
Baosteel and Wuhan Steel (
WISCO) to merge with other mills all around the country to form super giant mills where the
production is centralized and environment pollution is reduced. But the result is not good so far. The key reason is the conflict of interests between the central and local governments. Therefore, some new trends have started to appear regarding the mergers of the steelmakers:
1. New steel giants will be made up with the merger of the mills located in same province or adjacent areas
All local governments strongly support such consolidations. Because, in addition to doing no harm to local governments' interests, they also provide more benefits, such as rapid GDP growth, more tax and financial income, and promotion of the related industries. As the cross-provincial mergers go into troubles similar to
Baosteel's cases, local mills' have forced the pace of consolidations with their counterparts in the same province under local government's promotion. Two famous examples to this kind of consolidation are: Anshan Iron & Steel (
Angang)-Benxi Iron & Steel (Bengang), and Laigang-Jigang mergers. The former two big steelmakers are both located in Liaoning province while the latter two are in Shandong province.
2. Foreign steel giants will probably find ways to merge with Chinese mills, by steering clear of political restrictions
Currently,
China prohibits foreign investors' gaining the majority control of local steel enterprises with more than 5 million tons annual
production. However, there is a question to this rule: What is the majority control? Of course, owning more than 50 percent shares at a company can be called so. But, even with shares less than 50 percent, a company can also gain the control of a company by other ways. Mittal's acquisition of Arcelor by just owning 43 percent of the shares is a good example.
Because foreigner's mergers with local mills is accepted as foreign investment, local governments will welcome such mergers. The provision of foreign investment is deemed as officials' achievement in post. As actual controller of major local mills, local governments can easily be persuaded to let foreigners rule the mill with less shares. According to interior messages, some foreign steelmakers are aiming at strong steel mills and they have already taken some actions.
3. The medium and small scale mills spread in relatively rural areas face two choices: To develop themselves, or to taken over by domestic or foreign mills
No matter which one they prefer, these mills will play unimportant roles on the local market.
The consolidation trends of steel corporations are expected to bring further impacts on
China's steel industry. If the mergers come true in accordance with the above mentioned trend, then there will probably be a super steelmaker in every major steelmaker province of
China. Besides, foreign steel giants may establish their steel empires in
China by merging with local mills, bringing their technology and competing with other local market players for the domestic market.