China, the world’s largest steelmaker, plans to create one or two producers the size of global leader ArcelorMittal to win better prices from customers and material suppliers, according to the famous "well informed but unnamed source".The Ministry of Industry and Information Technology will push for mergers and acquisitions among the nation’s more than 800 steel mills.
The Chinese government in August said the fragmented steel industry has led to overcapacity, depressing metal prices and reducing the ability of Baosteel and others to obtain cheaper materials. The nation accounted for half of global imports of iron ore in 2008, and failed this year to win a price cut agreement from BHP Billiton Ltd. and Rio Tinto Group.
Zhou Xizeng, chief analyst with Citic Securities, said, “Bigger mills will emerge as Baosteel and others lead domestic acquisitions. The advantages of such a policy are obvious — bigger mills will be better in technology development, have larger sales channels and lower costs.”
Li Xinchuang, executive director of China Metallurgical Industrial Planning and Research Institute, a state-run government adviser, confirmed a steel policy plan is under discussion. He declined to reveal details.
The unnamed source said China should have one or two producers with capacity of 100 million metric tons each by 2015 under the proposed policy. The 10-biggest mills should account for 75% of China’s output by 2020, up from an earlier target of 70%.
ArcelorMittal produced 101.6 million tons of steel last year. Baosteel, China’s biggest steelmaker, made 35.44 million tons, followed by Hebei Iron & Steel Group with 33.3 million tons. The nation’s 2009 output was 500.5 million tons.
Bloomberg reported that under the new policy, the Chinese government also wants steelmakers to reduce reliance on imports of iron ore by buying more scrap steel as alternative raw materials, the person said.