Chinese Baowu plans to acquire Shangang

China Baowu Steel Group (Baowu), already the world's largest steel producer with an annual production of over 100 million tonnes of crude steel, has blocked the state-owned Shandong Iron & Steel Group (Shangang), a leading steel mill located in eastern China's Shandong province. Shandong Iron & Steel Co, a Shanghai-based subsidiary of Shangang, said in a July 15 announcement as the next acquisition target of Chinese steel mills.

The joint-stock company shared that on July 14, the parent company notified it that the Shandong Provincial Supervision and Management Commission, the ultimate owner of Shangang, is in talks with Baowu regarding “a strategic restructuring of Shangang, which could result in a change of controlling shareholders and de facto controllers ".

Mysteel Global noted that this was further progress and the first official recognition on this matter since market speculation about this possible combination since the beginning of this year and confirmation of the intention of both parties in January. Baowu did not release any releases on Thursday.

“The Shangang acquisition will further optimize Baowu's location in China,” said a Shanghai-based analyst succinctly.

Mysteel Global noted that Baowu has been the main force behind M&A deals in the domestic steel industry in recent years, with the majority of its acquisitions being state-owned enterprises.

Baowu's crude steel production was 115.3 million tonnes in 2020, according to the World Steel Association (WSA), following a series of mergers and acquisitions since December 2016, more than ArcelorMittal, which has become the world's leading steel mill.

Baowu was incorporated at the end of 2016 as a new venture through the merger of Baosteel Group and Wuhan Iron & Steel Group, and has since acquired Magang (Group) Holding in June 2019, Taiyuan Iron & Steel Group Co in August 2020, Chongqing ... Mysteel Global noted Iron & Steel Group in September 2020, followed by Kunming Iron & Steel Co in February.

Typically for Baowu, he usually chooses “high quality steel assets” or those plants that can complement the existing capacity or steel structure, according to the analyst, and there are not likely to be any major changes in the near future. He added that Shangang's day-to-day operations are "based on Baowu's previous mergers and acquisitions."

A Shangang spokesperson confirmed this, saying that Shandong's steel mills are adopting Baowu's “dedicated management” scheme, which differentiates management styles according to steel products to optimize operations, and this is “beneficial to Shangang,” he said.