China Eyes Steel Merger to Create Rival to ArcelorMittal (Bloomberg News – June 27, 2016)

China’s second- and sixth-largest steelmakers by output have entered restructuring talks, which analysts say could presage a merger that would create the nation’s biggest mill, and a company with the scale to rival the likes of ArcelorMittal SA.

Trading was suspended in the listed units of state-run Shanghai Baosteel Group Corp. and Wuhan Iron & Steel Group Corp. as their parents discuss “strategic restructuring,” the companies said in statements on Sunday, without elaborating.

The two companies had a combined market value of $16.3 billion as of Friday’s close, and capacity of more than 70 million metric tons. Analysts including those at Citigroup Inc. and Mysteel Research cited the news as heralding a potential merger of the companies.

The talks highlight China’s efforts to overhaul its inefficient state-run sector and bolster an economy headed for its slowest growth in decades. A deal between the two would be the biggest in China’s metals sector since December, when China Minmetals Corp., its biggest trader, agreed to buy a government-owned engineering and mining group, as the nation seeks to reduce overcapacity while creating globally competitive firms.

“The merger of Baosteel and Wuhan Steel fits with the government strategy of improving efficiency and reducing competition and overcapacity,” said Xu Xiangchun, chief analyst at consultancy Mysteel Research. “With these two leading the effort there might be more mergers ahead.”

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