Baosteel merger marks beginning of consolidation

China’s plan to create the world’s second-largest steelmaker faces an uphill battle because of its sheer complexity. Yet the government is determined to force steel capacity reductions through additional consolidation, according to Caixin. The proposed merger of China’s second-largest and most profitable steelmaker, Shanghai-based Baosteel Group, with its money-losing smaller rival, Wuhan Iron & Steel Group, will create an industry behemoth. But it may be just the beginning of a new wave of government-backed consolidation in the fragmented and inefficient steel industry. In 2015, the sector has been using just two-thirds of its capacity. China’s steel profits have been shrinking since 2012, and last year the industry’s profit margin fell to negative 2%, with about half of major steel companies reporting losses.