CRI听力:Steel Merger Approved with Panzhihua and Anshan Steel

Liaoning-based Anshan Steel Group has received approval from China's state asset regulator to merge with Sichuan-based Panzhihua Steel, paving the way to become the biggest steelmaker in China.
Zhao Jianfu has more.



Anshan Steel and Panzhihua Steel said in a statement that China's State-owned Assets Supervision and Administration Commission had approved the Anshan-Panzhihua deal.

The deal calls for establishing a new state-owned firm, Angang Steel, which will entirely own the Pangang Group as well as the Anshan Steel Group.

Once the consolidation is complete, new Angang will have an annual output capacity of 46 million tons, surpassing Hebei Steel and Shanghai-based Bao Steel Group to become China's largest steel producer.

Industry insiders say the marriage will give full play of their complimentary advantages, as Panzhihua Steel is located at one of China's main mineral resource producing areas. The poor logistic conditions in the remote area, shortage in funds and technologies once hampered the exploitation of the resources. Now with financial and technological support from Angang Steel, the resources will be better utilized. The new company could also tap into the market in southwest China with the help of the consolidation.

But industry analyst Xu Xiangchun indicates the consolidation will only have a limited impact in boosting the Chinese steel industry's bargaining power in iron ore purchasing as well as the downstream and upstream industry chain.

"We regard the regrouping of Angang Steel and Panzhihua Steel a horizontal consolidation, instead of a regrouping of an industry chain from downstream to upstream. So we haven't seen any impacts to the whole industry chain."

Analysts say the deal may become a model for trans-regional regrouping and reallocation of resources in the steel sector.

The Chinese central government has been actively pushing for consolidation in the country's fragmented steel sector, aiming to create three to five majors with greater competitiveness, although several deals have stalled due to opposition from local governments.

Many steel mills provide a key source of jobs and tax revenue for local governments, which in turn often fiercely resist giving up control and revenue via a merger.

Xu Xiangchun says this needs to be addressed.

"If local governments only hope steel makers in their own administrative areas consolidate with each other and resist mergers from outside, I think it will hurt the efficiency of regrouping, and we won't see the optimizing of the allocation of resources."

China wants to consolidate the steel sector to boost bargaining power in iron ore purchasing and increase cost competitiveness, while shutting outdated, heavily polluting mills as the industry battles chronic overcapacity.

For CRI, I'm Zhao Jianfu.