The Ministry of Industry and Information Technology (MIIT) is to liaise with other ministries to formulate plans for consolidation of the steel sector in China through mergers and acquisitions.

The concept is to eliminate obsolete production capacity, optimise steel distribution, provide technology transfer and improve competitiveness. The time frame set is 2015. The objective is for each of the top ten steel groups to each have a minimum of 60Mt/y production.

Sheffield based steel analysts, MEPS estimates that, if it was to be fulfilled, the ‘super-ten’ would command around 70% of Chinese output – up from near to 47% in 2012. It would appear that the concept is to bolt companies together on a regional basis.

In 2010, MIIT was charged with developing a scheme for rationalising the steel sector. At that time, the task was less onerous. The time frame was five years and the industry was to be restructured with the top ten steel companies each having, a minimum of 45Mt production capacity. Now, the bar has been raised, and the task looks impossible.

Choosing the enterprises which provide the best fit of production facilities will test the authorities. The amount of time that is required to bring management systems into unison is a mammoth task. Moreover, working practices on the shop floor would require a significant amount of attention.

The act of consolidation takes time and patience on all parties. The management at steelmakers in Europe, Japan and North America have been suffering these difficulties for decades. Making the initial decision is the easy part; translating the policy into practice is the biggest challenge. Many steel industry executives have the scars to prove this.

Restructuring the steel sector will, clearly, be of great benefit but the magnitude of the task is not to be underestimated. There are many pitfalls. One of the most contentious issues will be the job losses that are likely to ensue. Is the Chinese government ready for this type of problem? In China, this may be easier to control than it was for the western countries which had to deal with strikes and other industrial relations complications.

Another critical element of the proposal will be how to deal with integrating the companies – while the majority of the ‘super ten’ are in the public sector many of the smaller companies that may be acquired by these are in the private sector. Could we be looking at privatisation schemes in China, similar to those which started in Western Europe with British Steel in the 1980s?

Source: MEPS China Steel Review