M&As to fuel upgrade of steel sector

Xu Xiangchun, information director with iron and steel industry consultancy Mysteel.com, said M&As in China's iron and steel industry were not as active as expected in the past, mostly because the industry grew too fast, and attracted too much investment for new capacity.

Now, as market supply and demand are rebalancing, investors are becoming more rational, and it is a good time for capable companies to resort to M&As for expansion, Xu said.

Both Li and Xu said there would be more M&As among State-owned and private companies in the industry, and among companies from different regions and provinces.

Some of these M&As have already taken place.

On Jan 30, creditors of bankrupt State-owned Bohai Steel Group Co Ltd approved a draft restructuring plan, under which Bohai Steel would sell some of its core assets to private steel-maker Delong Holdings Ltd.

In December, Beijing Jianlong Heavy Industry Group Co Ltd's restructuring plan for bankrupt steel-maker Xilin Iron & Steel Group Co Ltd in Heilongjiang province got approval from Xilin Group's creditors, making the Beijing-headquartered private conglomerate one of the five largest steel companies in China.

Before that, some provinces, including Hebei, Jiangxi and Shanxi, issued statements favoring M&As among iron and steel firms to reduce the total number of companies in the sector.

Wang Guoqing, research director at Lange Steel Information Research Center, a Beijing-based industry think tank, said a few large companies will account for the bulk of capacity in the iron and steel industry in the long run, and this year will see such trends intensifying.

That is because, being acquired by large companies has increasingly become a choice for small companies as it becomes more difficult for them to maintain profitability and meet strict environmental standards under current circumstances, she said.