Companies

Giant steel firm forges ahead

By Zhang Qi (China Daily)
Updated: 2011-01-05 13:55

BEIJING - Hebei Iron and Steel Group Co Ltd, China's biggest steelmaker by output, said on Monday that it agreed to take 10 percent stakes in seven private steel mills in an alliance that will expand production capacity and enhance consolidation in Hebei province's fragmented steel industry.

The joint ventures were formed with the private rivals Jiujiang Wire, Yanshan Iron & Steel, Rongxin Group, Xinda Iron & Steel, Xinjin Iron & Steel, Yuhua Iron & Steel and Jinding Heavy Industry. They are all based in the cities of Qian'an or Wu'an, where a large number of steel mills were ordered to close to meet energy-saving goals last year, Hebei Steel said in a statement.

The seven mills have a combined steel capacity of more than 14 million tons, the company said.

The move comes after Hebei Steel announced in November that it had acquired a 10 percent stake in five private steel mills in the province, indicating the giant steelmaker's ambition to get a bigger slice of market share.

Hebei Steel said it will set up a special department to negotiate with the 12 steel mills and help manage the firms, providing the mills with technology and its raw-material purchasing and sales channels.

A Hebei Steel official, who declined to be named, said the company didn't pay for the stakes with capital, but acquired them in return for sharing its resources.

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China has been encouraging big mills to merge with rivals to create more cohesive steel groups for several years because of overcapacity, pollution and high-energy consumption.

It aims to create several major companies with an annual production capacity of over 50 million tons through mergers and acquisitions. The top 10 steelmakers are expected to account for more than 60 percent of the country's total steel capacity by 2015.

But the consolidation hasn't gone smoothly, since State-owned companies operate under a different business environment compared to private mills.

Steel output in Hebei province - where 60 percent of the capacity comes from scattered, small, private steel mills - reached 130 million tons in 2009, more than one-fifth of the country's production.

Previously, media had said Hebei province is drafting a plan to reduce the number of its steel mills from 88 to 10 over the next five years.

The central government will withhold approval for any new projects aiming to expand capacity by 2011, forcing the mills to consolidate.

Zhang Lin, a senior analyst at the Beijing Lange Steel Information Center, said Hebei Steel is leading the consolidation efforts of the province's steel sector.