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Largest Steel Maker Emerges in Hebei

06-30 16:09 Caijing Magazine

China's largest steelmaker inaugurated in Hebei – the province's first step to integrating its solid steel industry.

By intern reporter Zhang Boling

After years of debate, Hebei's provincial government has approved the merger of Tangshan Iron & Steel Group and Handan Iron & Steel Group, to create a new Hebei Steel Group and further strengthen Hebei's already solid status in the steel industry.
 
The new Hebei Steel Group has a combined annual capacity of more than 31 million tons. Wang Yifang, general manager of Tangshan Steel, said the new giant will overtake Shanghai-based Baosteel Group to become China's No. 1 steel maker by output.

The ambitious deal has excited the industry; however, questions remain about how the two companies will arrange personnel and assets, and how the rise of a new giant will impact the large number of private steel makers in Hebei.

A New Giant

On June 30, the new Hebei Iron & Steel Group was officially inaugurated in Shijiazhuang, the capital city of Hebei Province. The new group has a registered capital of 20 billion yuan, with 50 million yuan injected by the Hebei provincial State-owned Assets Supervision & Administration Commission. The commission also transferred state-owned assets from Tangshan Steel and Handan Steel to Hebei Steel Group.

The two steel firms thus became the new company's subsidiaries. The Hebei Steel Group will have an annual production capacity of more than 31 million tons and expects that number to expand to 50 million tons by 2010.

Wang Yifang, general manager of Tangshan Steel, was appointed as the board chairman and general manager of the new company, with Liu Rujun, board chairman of Handan Steel, acting as second in command.

The reshuffle has surprised many insiders, as the provincial government's attempt to establish a Hebei Steel Group has been delayed for many years due to a protracted debate about the plan.

Song Jijun, deputy chairman of Hebei Metallurgical Industry Association, told Caijing that this year's breakthrough is the work of Zhang Yunchuan, Party Secretary of Hebei province, who had been strongly advocating for the merger.

Challenges Ahead

According to an industry insider, the planed structure of the newly formed Hebei Steel is quite similar with the current structure of Tangshan Steel, which suggests Tangshan Steel will become the major part of the new group.

The source told Caijing that, "although Handan Steel has a smaller capacity, it is quite influential in southern Hebei and has equipment comparable to that of Tangshan Steel. Therefore, which company will play the major role in the new group will be a problem to be settled."

In 2007, Tangshan Steel produced 22.75 million tons of steel, while Handan Steel had an output of 9 million tons.

A source at Handan Steel said the restructuring may face many difficulties since it has to take each company's interests into account. “The two companies currently overlap in many products and markets, so how to allocate market in the new group will be a major problem in the restructuring,” said the source.

Hebei province had created a Bohai Group by merging two construction material companies early in 1997. However, the restructuring finally failed in 2005 since the merger didn't change the competitive relationship between the two companies by integrating their businesses. 

The Next Step

The merger of Tangshan Steel and Handan Steel may just be the beginning. Hebei Province is mulling over whether to allow more assets to merge into the new group.

People close to the deal told Caijing that after the establishment of Hebei Steel Group, the provincial government will soon work out supportive policies to help the group expand business.

Except for state-owned steel mills, private steelmakers are an important part of Hebei's steel industry. According to Hebei Metallurgical Industry Association, private steel companies had a combined production capacity at 70 million tons in 2007. The companies posted total revenue of 401 billion yuan, accounting for 74 percent of the whole industry in Hebei.

According to Song Jijun, merging the private players will be an important step in the development of Hebei Steel Group. However, it will not be easy as most private companies are currently quite profitable.

The head of one such private steel maker told Caijing that if Hebei Steel wants to acquire his company, the price will be quite high. "But we are glad to cooperate by other means, such as strategic partnership and cooperation in R&D," said the source.

At the same time, private steelmakers in Hebei are busy seeking cooperation with each other to strengthen their foothold in the market.

Three private companies have merged into Tangshan Guofeng Iron and Steel Co. Ltd, which was the third largest steel company in Hebei following Tangshan Steel and Handan Steel. Meanwhile, Ruifeng Iron & Steel Group Ltd., which combines six private firms, has become the eighth largest steelmaker in the province.

A staff at Guofeng Iron and Steel told Caijing that industry integration is inevitable in Hebei's steel industry, and the government's policy will be a key factor in the future reshuffle of private players.

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