The dealmaking boom for steelmakers began as demand and prices skyrocketed. Now, with steel prices dropping to 14-year lows, companies are merging just to survive. China's latest move in the sector involves merging Tangshan Iron and Steel Co. Ltd., Handan Iron & Steel Co. Ltd. and Chengde Xinxin Vanadium & Titanium Co. Ltd., creating the biggest listed steel maker in China. The combined firms will
keep the Tangshan name.
The China Iron and Steel Association
reported that the country's main steel plants posted a loss of 12.77 billion renminbi ($1.87 billion) in November, the second monthly net loss after October. Reuters notes the
deal aims to improve efficiency and cut pollution as well as adding to China's bargaining power and quoted an analyst saying, "The merger will create a big steel player but not a strong one, and to some extent it is not good for Tangshan shareholders."
China, the world's No. 1 steel producer,
combined two of its steel companies in June to form the fifth-biggest steelmaker in the world. State-owned Hebei Iron and Steel Group Co. -- which Tangshan is part of -- replaced Baosteel Group Corp. as China's biggest steel company. Reuters noted two other big deals, including the creation of Shandong Iron and Steel Group in March from the state-owned parents of Laiwu Steel Corp. and Jinan Iron and Steel Co. Ltd., and the formation of Anben Iron and Steel Group in northeastern Liaoning province three years ago.
Analysts say 2009 will continue to be tough. ANZ Bank's head of commodity research
Mark Pervan told TheAge.com that the benchmark price for iron ore is expected to drop between 10% and 50% in 2009 as Chinese steel mills play hardball to mitigate the almost 100% price hike negotiated this year by mining giants BHP Billiton Ltd. and Rio Tinto plc. -
Baz Hiralal
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