Mergers and consolidation to fuel upgrade China’s steel sector

Mergers and acquisitions will provide the impetus for sustainable transformation and upgrade of the iron and steel industry and leverage on gains from the overcapacity reduction campaigns in the sector that are coming to an end, industry experts following China’s steel sector said.

According to the National Development and Reform Commission, the nation’s top economic regulator, China has fulfilled the upper overcapacity reduction goals for the 13th Five-Year Plan (2016-20) in the iron and steel sector in advance, and efforts will be continued for further high-quality development.

Policymakers in 2016 set a target of eliminating 100 to 150 million metric tonnes of excess capacity after the country’s iron and steel sector saw a downtrend.

At the end of the 12th Five-Year Plan (2011-15), the country’s iron and steel capacity amounted to 1.13 billion tonnes, which severely saturated the market.

Through M&As, leading companies will increase their market share, and reduce excessive competition, benefiting the development of the industry, he said, adding both domestic and foreign experiences have revealed that increasing industry concentration, or the market share of leading companies, is an important step for the iron and steel industry to optimise its structure and further develop.

The current top 10 Chinese iron and steel companies came into existence through M&As. Mergers and acquisitions in the industry were not as active as expected in the past, mostly because the industry grew too fast, and attracted too much investment for new capacity.

Now, as market supply and demand are rebalancing, investors are becoming more rational, and it is a good time for capable companies to resort to M&As for expansion.

It is expected there would be more M&As among State-owned and private companies in the industry, and among companies from different regions and provinces. Some of these M&As have already taken place.

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