On the evening of May 10, Baosteel and Handan Steel officially signed their joint venture agreement for the construction of a new steel project with an annual output of nearly five million tons in Handan city where Handan Steel is based. The event has widely been seen as an indication that steps towards increased consolidation of China's steel corporations are speeding up.
With the backing of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), Baosteel took an important step forward towards a merger with Handan Steel, though the official statement said this project was simply an ordinary equal-share collaboration between these two steel corporations.
This latest joint venture project involves a total investment of RMB 19.37 billion ($2.53 billion). The main products include pipe steel, auto steel sheet and household-application steel. According to the plans, with the accomplishment of the first construction phase in early 2008, the annual steel output will reach 2.5 million metric tons. By the end of 2010, the project will be completed with annual output then expected to reach over seven million metric tons.
To secure the success of this project and to anticipate potential adverse factors, China's central government has intervened and asked all the interested parties to actively take measures to advance the preparations. As a result, the top official of Hebei Province (where Handan city is located), along with a group of representatives, paid a visit to Baosteel not long before the signing ceremony for the new project.
Although with a certain reluctance in some quarters, the collaboration between Baosteel and Handan Steel is now actually underway. With the construction phase of the project, Baosteel is moving closer to becoming an even bigger steel giant and to claiming a greater market share in north China, and especially in Hebei Province.
Apart from Baosteel, with the backing of the state, other local big steelmakers are also preparing to take practical steps towards consolidation and expansion. The future consolidations will mean loss of interests at various levels of local government. However, consolidation has already become an inevitable trend in China's steel industry.