China to create giant steel firm

China is creating the second largest steel group in the world.

According to Chinese media, it could be announced in the week the takeover by Baosteel Group, government-company, China's second giant of the sector, which would incorporate Wuhan Iron and Steel Group. The two companies are currently in fourth and eleventh place in the world ranking of steel producers and, according to figures by the World Steel Association, combined annual capacity of the two companies in 2015 was around to 60.7 million tons, behind only to Luxembourg-based ArcelorMittal.

The new company will be called Baowu China Iron and Steel Group and the merger would have already passed the scrutiny of the authorities, which is the last step towards the final go-ahead. Both Baosteel and Wuhan had both announced in June that they prepared a restructuring plan. Baosteel in 2015 saw net profit fall by 83% to 150 million dollars, while Wuhan went from a profit of 1.3 billion yuan (195 million) in a red 7.5 billion (1.1 billion). 

"This is part of the government’s efforts to push through supply-side reform and will have a model effect for the new round of mergers and acquisitions," said Hu Yanping, an analyst with industry website Custeel.com.

“Restructuring in China’s steel industry is the trend and it's an unstoppable one,” Chen Bingkun, an analyst at Minmetals and Jingyi Futures, told AFP.