[ferro-alloys.com]China's Baowu Iron & Steel Group is set to take a 51% stake in major stainless steel producer Taiyuan Iron & Steel, or TISCO, worth Yuan 14.5 billion ($2.1 billion), which will take its combined crude steel capacity to 111 million mt/year.

According to an announcement by TISCO's Shenzhen-listed arm, the Shanxi provincial government signed a strategic cooperation framework agreement with Baowu on Aug. 21 to acquire the stake. The Shanxi provincial government will retain the 49% balance.

The merger requires approval from the Assets Supervision and Administration Commission of the State Council. But market sources expect the deal to be approved soon, as the Chinese government has long been striving to consolidate its steel industry.

Baowu currently has a crude steel capacity of around 98.5 million mt/year, while TISCO has 12.94 million mt/year, of which 4.5 million mt/year is for stainless steel products.

Some market sources said Baowu's consolidation of China's steel industry would continue beyond its 111 million mt/year capacity. The sizable capacity will help Baowu to gain a bigger say in iron ore price negotiations, sources said.

Moreover, Baowu's consolidation of the major steelmakers in China will enable better management of steel production in the country.

"Consolidation of major mills will make it easier for the whole industry to work in synergy to boost or cut production based on market conditions," one market watcher said.

Having access to TISCO's stainless steel facilities will help Baowu's push to produce higher-end products and better compete internationally with Japanese and South Korean steelmakers.

Baowu is comprised of subsidiaries Baosteel Group in eastern and southern China; Wuhan Steel Group in central China; Maanshan Iron & Steel Group in eastern China; and Chongqing Iron & Steel in southwestern China. The merger with TISCO will stretch Baowu's presence into northern China.

In 2019, Baowu produced 95.46 million mt of crude steel, while TISCO's output reached 10.86 million mt, giving a combined 106.32 million mt. Baowu was the world's second largest steelmaker after ArcelorMittal, which produced 97.31 million mt in 2019, according to the World Steel Association.

ArcelorMittal's production has been curtailed this year due to the coronavirus pandemic cutting global demand. Meanwhile, Chinese mills have achieved record steel production, and even maintained high levels during the lockdown in February and March.

In 2018, Baowu comprised just Baosteel and Wugang, and produced 67.43 million mt of steel.

(S&P Global Platts)

• [Editor:王可]