According to Nikkei Asia, China's steel industry is going through a correction as the government pushes for mergers between factories and demands output cuts in the hope of ending the oversupply that drags on. many years long.
Ansteel Group Corporation, the world's 3rd largest steel producer by crude steel output, will acquire Lingyuan Iron and Steel Group, a mid-sized steel producer in Chaoyang, Liaoning province, with the aim of increasing production volume up about 10%. Ansteel Group is headquartered in Anshan City, Northeast China. Lingyuan Iron will be under the control of Ansteel Group as the largest shareholder. Shares will be purchased from Chaoyang's state-owned asset management and supervision agency.
The Market Regulatory Authority in Beijing authorized the deal in early June after reviewing issues related to antitrust and other screening processes. The deal is said to be in the final stages of completion, although the completion date is unknown.
In an announcement, Chairman Tan Chengxu said that 2023 is the time for Ansteel Group to accelerate its growth, becoming a leading company in the world. Ansteel Group has acquired competitors in recent years. In October 2021, the company bought a 51% stake in Ben Gang Group in Benxi, Liaoning, to increase production volume by about 50%. The deal makes Ansteel Group the world's third-largest crude steel producer, up from seventh, according to the World Steel Association.
Ansteel Group has produced 56 million tons by 2022. An additional 5.1 million tons of Lingyuan Iron will bring the Group total production of 61 million tons. The Company's target is to be able to produce 70 million tons by 2025. To produce more, the Company may consider further acquisitions.
China's Baowu Steel Group, which holds the largest market share in the global steel market, is also stepping up mergers and acquisitions (M&A). The company bought a 51% stake in Magang Group Holding Company in Anhui province in 2019; Shanxi Province Taiyuan Iron and Steel Group in 2020; and Xinyu Iron and Steel Corporation in Jiangxi province last December.
As of 2022, Baowu has produced 132 million tons of crude steel, more than doubling output in the past five years. Baowu is said to be considering acquiring Shandong Iron and Steel Corporation in Shandong province, aiming to reach 200 million tons or more by 2025.
At a Steel industry forum in March, Zhang Haideng, deputy director of the materials industry division of the Ministry of Industry and Information Technology, urged steelmakers to accelerate consolidation and restructuring. . China's top 10 steel producers by crude steel production account for about 43 percent of China's total output by 2022, according to the China Iron and Steel Association (CISA). The ministry hopes to raise this ratio to 60% by 2025 by encouraging M&A deals in the industry, which has too many manufacturers.
Nippon Steel and the other two top steel producers in Japan account for about 80% of the country's output, while the two largest South Korean producers account for a similar share. However, in China, there are many steel producers. The government is pushing for consolidation in the hope of tackling the steel glut. The oversupply, calculated as crude steel production minus steel consumption, rose to a seven-year high in May 2023, according to Marubeni Research.
China is the world's largest crude steel producer, accounting for more than 50% of total global production. Output hits an all-time high in 2020. Annual production targets are set in advance by the government, tightly controlling output in each region. If there is a surplus, the Government orders a halt.
The government has ordered production cuts in 2021 and 2022, but plans to keep output in 2023 at the level of the previous year. Adding to the industry's difficulties, steel prices are falling, reflecting the slow recovery of consumption in the post-Zero-Covid era and a sluggish real estate market.
In China, the price of hot rolled coil has fallen 42% as of the beginning of June, compared with the highest level set in May 2021, according to CISA. Mr. Wang Yingsheng, member of CISA described the drop in steel prices as "terrible", and said that oversupply was the biggest problem.
As a result, Chinese steelmakers are struggling with declining sales. In the business year ended December 2022, Ansteel Group posted a net profit of 5.8 billion yuan ($809 million), down 51% year-on-year, as revenue fell 12% to 336.6 Yuan. Baowu reported a 1% increase in sales but a 50% drop in net profit.
The government's call to reduce production is in response to the current weak demand. But domestic demand could be even weaker in the future as the population declines. Analysts at Marubeni Research said further reductions in production capacity may become necessary in the future.