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"BMW Alliance" Established, China’s Steel Industry Faces a Major Reorganization
Date: 2006-01-20 09:41:58 Source: Shanghai Securities News
Haikou Evening News Network January 20th reported according to Shanghai Securities News: Yesterday at 16:30, Baosteel Chairman Xie Qi-Hua and Ma'anshan Iron & Steel General Manager Gu Jian-Guo jointly signed the "Strategic Alliance Framework Agreement between Baosteel Group Co., Ltd. and Ma'anshan Iron & Steel (Group) Holding Co., Ltd." in Shanghai Baosteel. The handshake between BMW not only marked the beginning of a strategic alliance between China's largest and tenth largest steel enterprises but also foretold a major reorganization of China's steel enterprises.
Baosteel and Ma'anshan Steel are both the main steel enterprises in East China. Baosteel is the largest and most modernized steel enterprise domestically with high-end plates as its leading product, while Ma'anshan Steel has a unique product structure represented by cold and hot rolled thin plates, H-beams, high-speed wire rods, wheel rims. Xie Qi-Hua stated that Baosteel and Ma'anshan Steel have the same corporate culture, and the product varieties between Baosteel and Ma'anshan Steel complement each other. Under the increasingly fierce global steel market competition and the accelerated upgrading of China's steel industry structure, the signing of the "Strategic Alliance Framework Agreement" by Baosteel and Ma'anshan Steel is conducive to the implementation of the "Steel Industry Development Policy" in East China, beneficial to jointly maintaining the order of the regional steel market, advantageous to improving the management level of Baosteel and Ma'anshan Steel, and playing a synergistic effect to enhance competitive advantages.
The heads of Baosteel and Ma'anshan Steel both expressed that they commonly recognize the cooperation principles of complementary advantages, win-win cooperation, clear goals, and practical results. They decided together to strengthen exchanges in aspects such as corporate culture and management experience, jointly promote cooperation in research and development to enhance technological innovation capabilities, cooperate in the procurement of bulk raw materials and marketing fields to reduce costs, and strengthen communication and coordination in the enterprise strategy and planning fields to promote healthy enterprise development.
It was understood that Baosteel previously exported a complete set of modern steel management processes to Ma'anshan Steel, preliminarily forming a common language in internal enterprise operations. This software-based pre-integration can be considered an innovation in domestic steel enterprise cooperation. However, how to advance from software to hardware integration in areas such as R&D, procurement, assets, etc., still needs observation. The company announced that to implement the "Strategic Alliance Framework Agreement," both parties of BMW will establish a regular mutual visit mechanism for enterprise executives and simultaneously form working groups to specifically organize and implement cooperation projects.
China's Steel Industry Restructuring Spawns Five Joint Camps
The reduction in industrial concentration has accelerated the conduct of China's entire steel industry restructuring.
In 2005, the total production of steel reached 340 million tons, which comes from the 4,847 steel mills currently owned by China. The rapid rise of thousands of medium and small steel mills has continuously suppressed the market share of China's top ten steel enterprises. Yong Zhiqiang of Haitong Securities Research Institute told reporters that in 1992, the market share of China's top ten steel enterprises was around 48%, and this proportion remained stable for ten years. Starting from 2002, the market share began to significantly decline, and by 2005, this figure had changed to 32%. The loss of market share by large steel mills forced the Chinese government to decide to optimize the layout of the steel industry. In 2005, the National Development and Reform Commission proposed that by 2020, the steel output of the top ten ranked steel enterprises should account for more than 70% of the national output. The government also decided to control the annual steel production capacity below 400 million tons by 2010, lower than this year's production capacity.
China's latest "Steel Industry Development Policy" clearly points out that it must improve concentration through mergers and acquisitions, and the main body of mergers and acquisitions relies on backbone enterprises with comparative advantages.
Under the rules of this policy, the integration steps of the five camps of China's steel enterprises have also accelerated.
(1) Northeast Block. The official registration of the merger between Angang and Benxi Iron & Steel has opened the curtain on reorganizations in Northeast China. Although officially registered now, both companies are still operating independently, and substantive integration steps are being implemented step by step. The total capacity will reach 20 million tons annually.
(2) North China Block. Shougang relocation and a series of reorganization actions involving Tangsteel and Handan Steel indicate the start of Bohai Bay area steel industry reorganization. Yong Zhiqiang said that the three major steel enterprises in Hebei Province have similar production volumes, and no company can act as an absolute buyer. However, the integration trend will still mainly focus on individual development. The total capacity of several companies will reach 25 million tons annually.
(3) Central Block. After WISCO incorporated E'gang into its fold, it is currently planning to jointly establish a new company with Guangxi Liuzhou Iron & Steel, intending to build a ten-million-ton-level steel plant in Fangchenggang, Guangxi, thereby achieving cross-regional reorganization domestically. The total output will reach 20 million tons annually.
(4) Western Block. Panzhihua currently has an annual production volume of about 5 million tons. There are rumors within the industry about consolidating Chongqing Iron & Steel, but the current trend is still unclear.
(5) East China Block. Regarding this BMW alliance, the industry unanimously believes that even if there are variables, the final orientation of their cooperation may still lead towards unification, becoming a breakthrough for steel industry consolidation in East China. The total annual output of these two strong players will reach 34 million tons.
Yesterday, Baosteel Chairman Xie Qi-Hua meaningfully expressed at the signing ceremony that BMW has the same corporate culture, and the products of the two companies have strong complementarity. This leaves ample room for imagination regarding BMW's future path of unification. (Yuan Xiao-Ke)