International Steel Mills

Baosteel and Wuhan Contemplating Merger

June 28, 2016

Baosteel and Wuhan Iron and Steel Group (Wisco) are contemplating a merger that would unseat Hebei Iron and Steel Group as China’s largest domestic producer and rival European steelmaker ArcelorMittal.

A merger of China’s second largest steelmaker Baosteel with fifth ranked Wisco would create a combined output of approximately 70 million tonnes. The merger would place the new company as largest in China, ahead of Hebei Iron and Steel’s 47.5 million tonne capacity. On a global basis the new company would take second place behind ArcelorMittal which produces 97.14 million tonnes annually.

In recent years both companies have absorbed smaller mills, removing outdated capacity and improving efficiency. A combination of the two could save even more by eliminating redundant facilities and improving resource allocation.

Baosteel and Wisco are directly administered by the Central Government and Wisco is chaired by Ma Guoquiang, a Baosteel veteran. A merger would fit well within the government’s plans to consolidate the domestic steel industry and reduce overcapacity.

China’s steel industry has been hurt by a domestic economic slowdown and by a deluge of trade cases from around the world against Chinese steel exports. Cited as responsible for the majority of steel overcapacity, Beijing has promised to reduce capacity by 45 million tonnes in 2016 and by 100 to 150 million tonnes over the next five years.

Baosteel and Wisco filed notice of “strategic restructuring” with the Shanghai Stock Exchange on June 26 and requested trading of their stocks be suspended as of June 27. The statements said more information would be released after five trading days.