M&As to fuel upgrade of steel sector

Industry looks to build on impetus from reductions in overcapacity

Mergers and acquisitions will provide the impetus for sustainable transformation and upgrade of the iron and steel industry and leverage on gains from the overcapacity reduction campaigns in the sector that are coming to an end, industry experts said.

According to the National Development and Reform Commission, the nation's top economic regulator, China has fulfilled the upper overcapacity reduction goals for the 13th Five-Year Plan (2016-20) in the iron and steel sector in advance, and efforts will be continued for further high-quality development.

Policymakers set a target of eliminating 100 to 150 million metric tons of excess capacity in the iron and steel capacity by 2020 in 2016, after the country's iron and steel sector saw a downtrend.

At the end of the 12th Five-Year Plan (2011-15), the country's iron and steel capacity amounted to 1.13 billion tons, which severely saturated the market, while the ratio of 10 largest enterprises' capacity against the overall capacity dropped from 49 percent in 2010 to 34 percent in 2015, according to the State Information Center, an institution directly affiliated to the NDRC.

The overcapacity cuts are also part of the ongoing supply-side structural reform that also includes deleveraging to sustain high quality economic development.

"The overcapacity reduction campaign also focuses on green development through means such as replacing outdated capacity with clean, effective and advanced capacity, and this has led to the establishment of the world's most strict environmental protection standards," said Li Xinchuang, president of the China Metallurgical Industry Planning & Research Institute.

"Having passed the stage of massive expansion to meet growing demand, the industry is relatively stable in both production and consumption, which opens a window for capable companies to expand, with deal momentum surging in the next few years."

Through M&As, leading companies will increase their market share, and reduce excessive competition, benefiting the development of the industry, he said, adding both domestic and foreign experiences have revealed that increasing industry concentration, or the market share of leading companies, is an important step for the iron and steel industry to optimize its structure and further develop.

The current top 10 Chinese iron and steel companies came into existence through M&As, he said.