China said to consider mergers to create two state steel giants

[BEIJING] China is considering a sweeping overhaul of its steel industry that would consolidate major steel producers into two giants, with one located in the north and the other in the south, according to people familiar with the plan.

Shanghai Baosteel Group Corp and Wuhan Iron & Steel Group Corp will be merged into Southern China Steel Group, while Shougang Group and Hebei Iron & Steel Group will combine into Northern China Steel Group, said the people, who declined to be identified because the information is confidential. The combinations will give Chinese steel mills the scale to rival global giants such as ArcelorMittal SA.

The state-owned Assets Supervision and Administration didn't respond to a request for comment, while a Baosteel Group spokesman declined to comment when reached by Bloomberg.

The mergers would enhance government efforts to reduce capacity in the world's biggest producer as part of its drive to overhaul an inefficient state-run sector and bolster an economy growing at its slowest in decades. China's crude steel-producing capacity reached a record of 1.2 billion tons at the end of 2015, according to the China Iron & Steel Association.

The plan "will help accelerate eliminating excess steel capacities as the companies will remove duplicated products," Helen Lau, an analyst at Argonaut Securities Asia Ltd said by phone from Hong Kong.

"It will also boost their competitiveness and strengthen their customer bases and leave little room for non-competitive smaller mills."

Even though China's steel output has peaked, the domestic market remains saturated, Chen Derong, general manager at Baosteel Group, told an industry conference in May.

As the nation seeks to clear its surplus, its exports are running at record levels, creating a global glut of the metal and drawing fire from competitors across the globe.

Listed units Baoshan Iron & Steel Co andWuhan Iron & Steel Co suspended trading of their shares in Shanghai on June 27 while their parents discussed a restructuring.

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