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Baosteel's top slot facing threat from Hebei Steel

By Wang Ying (China Daily)
Updated: 2009-07-10 08:05

Following a major restructuring late last year, Hebei Iron & Steel Group (Hebei Steel) has overtaken industry "dragon head" Baosteel in terms of output, giving it the clout to share the platform with the Shanghai producer in price setting and negotiations with overseas ore suppliers.

Figures from the Ministry of Industry and Information Technology showed that Hebei Steel has displaced Baosteel from the top slot in May with a total output of 3.15 million metric tons. Baosteel produced 3.13 million tons of steel products that month.

The latest count, of course, is unlikely to have any material impact on the ongoing Baosteel-led price negotiations with foreign ore suppliers. But industry analysts said the rise of Hebei Steel is significant to the future development of the industry, especially when the company is embarking on the second stage of restructuring by grouping together its three listed subsidiaries and two privately held units to form a mega steel conglomerate with a public listing.

As earlier reported, the proposed merger calls for the acquisition by the principal listed subsidiary, Tangshan Iron and Steel, of the assets of the other listed subsidiaries, Handan Iron and Steel and Chengde Xinxin Vanadium and Titanium Co. When the transaction is complete, Tangshan will be the sole remaining listed entity of Hebei Iron.

In the second stage of the restructuring, Hebei Steel said it would inject the quality assets of its unlisted subsidiaries, Wuyang Iron and Steel and Xuanhua Iron and Steel, into the remaining listed arm.

The proposed transaction, if it goes through, will catapult Tangshan Steel into the forefront of steel producers with an estimated annual output in excess of 30 million tons, challenging Baosteel for the top spot among the nation's steel producers.

As for now, Baosteel still remains the king of the road.

Related readings:  Hebei Iron arms merger to challenge Baosteel  Baosteel burns its fingers on costly nickel hedges  Baosteel cuts prices of steel products  Steel sector consolidation to continue

"I don't think by producing a little more steel Hebei Steel can challenge Baosteel's dominant position in the steel sector," said Nie Xiuxin, a senior industry analyst with Ping An Securities.

As China's barometer of the steel industry, Baosteel boasts not only of giant output, but also enjoys advantages in research and development, metallurgical technology, and production innovation. All these factors should also be taken into consideration when valuing a steel company's industrial status, and as such Baosteel's position is insurmountable in the short term, said Nie.

The overall steel turnover of China takes up nearly half of the global total. However, China's say in the international steel industry is still very limited. "That is quite similar to the situation of Hebei Steel and Baosteel," she added.

Wang Zhaohua, analyst, Guodu Securities, said Baosteel's position is hard to replace. "At present, everyone in the steel industry follows Baosteel in terms of management, technical development and price adjustment," he said.

According to Wang, around 30 to 40 percent of Hebei Steel's products are low-end construction steels. In contrast, Baosteel concentrates more on high-end steel sheets, used in automobiles and electronic home appliances.

Baosteel has a goal of developing itself as the world's second largest steel producer by 2012, with a projected annual production of 80 million tons.