[SMM special topic] the stock price of Angang rose 6% and the personnel change triggered the conjecture of reorganization.

China is planning a merger and restructuring of Baowu Group and Angang Group to meet the government's industry concentration targets for the next few years and Baowu's own future production targets, Bloomberg quoted people familiar with the matter as saying. Boosted by the news, Angang shares (SZ000898), Baosteel shares (SH600019) rose in the afternoon, Baosteel Packaging (SH601968) rose by the limit, Angang shares (SZ000898) rose more than 6 per cent. SMM analysis shows that the current concentration of the iron and steel industry is about 40%, far lower than the level of developed countries. From the point of view of the development plan of the iron and steel industry in Xuzhou and other places, merger and reorganization is the only way for the development of the industry. However, according to the latest news, Wang Yidong, deputy general manager of Anshan Iron and Steel Group and chairman of Anshan Iron and Steel Group, said he was unaware of the news of the restructuring.

Note: on November 20, Baosteel AG announced that due to other arrangements for its work, Dai Zhihao, chairman of Baosteel Co., Ltd., offered to resign as chairman and director of the seventh session of the board of directors of the company, as well as other positions in the seventh session of the board of directors. He was also removed from the standing Committee of the Party Committee of China Baowu Iron and Steel Group Co., Ltd. Dai Zhihao is the first chairman of Baosteel after the exchange of shares to absorb the shares of WISCO.

The acquisition of Angang by the world's largest steel company may only be the first step

As early as June 26, 2016, WISCO shares and Baosteel shares issued a suspension announcement, announcing that the parent companies of the two listed companies, WISCO Group and Baosteel Group, are planning a strategic restructuring. Three months later, ST8 Steel announced that SASAC had agreed to the joint restructuring of Baosteel Group and Wuhan Iron and Steel Group. After the merger, Baowu Iron and Steel Group overtook Hebei Iron and Steel to become the largest iron and steel enterprise in China and the second largest steel enterprise in the world.

The world's largest steelmaker is Luxembourg-based ArcelorMittal, with a crude steel capacity of 97.03 million tons for the whole of 2017. In the same year, China's Baowu crude steel output was 65.39 million tons, ranking first in China and second in the world. Maanshan Iron and Steel Group ranked second in China in crude steel production in the same period. If the acquisition is true, Baowu Iron and Steel will produce nearly 97 million tons of crude steel, surpassing ArcelorMittal to the top of the world's largest steel company.

Acquisition feasibility evaluation

1. Nearly halve steel production capacity in the next 10-20 years

On September 20, 2018, the second ministerial meeting of the Global Forum on Steel overcapacity was held in Paris, France. From 2016 to 2017, China resolved steel excess capacity by means of marketization and the rule of law by about 120 million tons. Over the past two years, China has relocated 272000 steel workers, more than the total number of steel jobs in the United States, Japan and the European Union. In 2018, China will continue to cut its crude steel production capacity by 30 million tons. Since 2017, the relationship between supply and demand in China's steel market has improved significantly, steel prices have basically returned to a reasonable range, and the profit level of enterprises has steadily improved.

Chen Derong, general manager of China Baowu and deputy secretary of the party committee, believes that according to the current per capita steel demand in Europe and the United States, China will be able to meet the demand in the future with only 500 million tons of steel. At present, the country's steel production capacity is more than 1.1 billion tons, so there will be 600 million tons of production capacity to be removed in the next 10-20 years.

2. Industrial concentration helps to expand the bargaining space for upstream and downstream industries