Restructuring of Hebei Iron & Steel Group has started and analysts viewed the move as a signal that the consolidation of China's steel industry may accelerate.
Tangshan Iron & Steel Co, Handan Iron & Steel Co and Chengde Xinxin Vanadium & Titanium Co, three listed units of the newly-launched group, suspended their trading from September 5, pending a restructuring plan.
"This indicates restructuring is underway within Hebei Steel. If true, the revamp has started much earlier than the market has expected and is very likely to trigger a new round of consolidation among other steel groups in similar situation," said Wang Dandan, an analyst with Romaway, an investment consultancy.
State-owned Hebei Iron & Steel Group was launched in June by combining Tangshan Iron & Steel Group and Handan Iron & Steel Group, both based in Hebei Province.
A number of other Chinese steel groups are in a similar situation, with several listed arms that could become takeover targets amid the restructuring, providing investment opportunities in the stock market, analysts said.
Shanghai-based Baosteel Group Corp, parent of Baoshan Iron & Steel Co, also controls Xinjiang Ba Yi Iron & Steel Co, Guangzhou Iron & Steel Co and SGIS Songshan Co. Wuhan Iron & Steel Group and Anben Iron & Steel Group also own several listed units.
Wang said that many small- and medium-sized mills had posted a sharp fall in profit or even lost money in the first half of the year while major steel makers have maintained stable growth. So there are good opportunities for mergers and acquisitions in the sector.
The fragmented industry structure in China, which produces a third of the world's steel, has resulted in low efficiency, pollution and a weakened bargaining power in annual price negotiations for iron ore, the main ingredient to make steel.
(Shanghai Daily September 16,2008)
