Steel sector lifted as Baosteel sees shares rise

An investor checks stock information at a brokerage house in Fuyang, Anhui province, February 24, 2017.[Photo/VCG]

Baosteel, the listed arm of the newly merged China Baowu Steel Group, saw its shares soar by 7.5 percent on Monday, its first trading day after its suspension on January 24, perking up the country's steel sector which has been dogged with overcapacity and ebbing demand.

Trading of Baosteel resumed on Monday after an equity swap between the listed entities of Shanghai-based Baosteel Group and Wuhan Iron & Steel Group in Central China's Hubei province on Monday.

After the equity swap, the total issuance of Baosteel grew from 16.45 billion shares to 22.1 billion shares, with Baowu Steel Group taking up 52.14 percent of total equity.

Baosteel's stock opened at 7.13 yuan ($1.03) per share, and ended the day 7.5 percent higher at 7.31 yuan apiece, with the broad market Shanghai Composite Index edging down by 0.76 percent to close at 3,228.66.

After Baosteel Group was approved by the State Council in September to merge with Wuhan Iron & Steel Group, the two steelmakers formed a giant in the industry that ranks first domestically and second globally, only behind Luxembourg-based ArcelorMittal.

Baowu Steel, the country's largest steelmaker with an annual output of more than 60 million metric tons of crude steel, is expected to set up an example for domestic steel mills in smashing overcapacity, upgrading product innovation, and strengthening global competitiveness, according to analysts.

Zhang Tieshan, an analyst with industrial information provider MySteel.com, said: "The merger between Baosteel Group and Wuhan Iron & Steel Group has raised the curtain for the steel industry to stage more mergers under pressure from environmental protection requirements and a supply glut."

In December, the Central Economic Work Conference outlined plans to promote mergers and restructuring in the steel industry. In the 13th Five-Year Plan period (2016-20) the country's top 10 steel enterprises have been tasked to raise their output from 34 percent of the nation's total to 60 percent.

Wang Guoqing, director of the Lange Steel Information Center, said the bullish performance of Baosteel shares on Monday is also an evidence that the country's steel sector was warming up since the second half of last year.

Wang said: "Chinese steel-makers generated a total profit of 165.91 billion yuan profit throughout 2016, representing a year-on-year increase of 232.3 percent, which is in stark contrast with the negative growth in the previous year."

Baosteel Group and Wuhan Iron & Steel Group announced their restructure plans on Sept 22, 2016, according to which, Baosteel Group will be the parent company of the restructured company and renamed China Baowu Steel Group, and Wuhan Iron & Steel Group becomes a wholly owned subsidiary of the new steel group.