The restructuring and signing of China Baowu and Maanshan Iron and Steel Group is only one step away from the world's largest steel company.

SMM: China Baowu and Maanshan Iron and Steel Group restructuring implementation agreement signing ceremony held today, China Baowu crude steel production will reach 87 million tons, only one step away from the world's largest iron and steel group ArcelorMittal production of 92.5 million tons. In June, Maanshan Iron and Steel Co., Ltd. announced that Anhui SASAC allocated 51% of its shares to Baowu Group free of charge, and that the actual controller of Maanshan Iron and Steel's shares was further "upgraded" to SASAC of the State Council.

According to the China Steel Association in 2018, China Baowu and Maanshan Iron and Steel Group produced 67.4294 million tons of crude steel in 2018 and 19.6419 million tons in 2018, totaling 87.0713 million tons. ArcelorMittal, the world's largest steel group, produced 92.5 million tons of crude steel that year, according to its 2018 annual report.

On June 3 this year, Maanshan Iron and Steel Co., Ltd. announced that China Baowu and Anhui SASAC signed a free equity transfer agreement, under which Anhui SASAC will transfer its 51% stake in Maanshan Iron and Steel Group to China Baowu. After the transfer is completed, the proportion of shares held by Anhui SASAC in Maanshan Iron and Steel Group will be reduced to 49%, while China Baowu will become the new controlling shareholder of Maanshan Iron and Steel Group with 51% shareholding.

Under this background, Baowu of China will become the indirect controlling shareholder of Maanshan Iron and Steel Co., Ltd., and the actual controller of Maanshan Iron and Steel Company will be further "upgraded" to the State-owned assets Supervision and Administration Commission of the State Council.

In 2018, Maanshan Iron and Steel Group had total assets of 97.004 billion yuan, crude steel output of 19.64 million tons, operating income of 91.8 billion yuan, and total profit of 8.945 billion yuan. Maanshan Iron and Steel Group has a supporting production scale of 20 million tons of steel, forming the headquarters of Maanshan Iron and Steel Co., Ltd., Changjiang Iron and Steel Company, Hefei Company and Watton Co., Ltd.

Baowu, China, was jointly reorganized by former Baosteel Group Co., Ltd. and Wuhan Iron and Steel (Group) Co., Ltd., and was established on December 1, 2016. steel production capacity of 70 million tons. China Baowu is a pilot enterprise of the State-owned Capital Investment Corporation, with total assets of 711.8 billion yuan in 2018, crude steel output of 67.25 million tons, operating income of 438.6 billion yuan, and total profit of 33.84 billion yuan, ranking 162nd in the Fortune 500.

China's Baowu has a plan to expand its steel production capacity by 100 million tons, hoping to become the world's largest steel group, but that ambitious goal can only be achieved through mergers in the context of China's capacity cuts. In addition to Maanshan Iron and Steel, Baowu also owns Baosteel shares, Songshan Iron and Steel Co., Ltd., and Bayi Iron and Steel listed companies.

Statistics from the China Steel Association show that the total output of China's top 10 iron and steel enterprises in 2018 is 340 million tons, accounting for 36.5 percent of the total domestic iron and steel output, and the industry concentration is not high, far from reaching the target of 60 percent of the 13th five-year Plan for the iron and steel industry. After the reorganization of "BMW", the total output will rise to more than 87 million tons, accounting for about 9.4 percent of the country's crude steel output. It is expected that the concentration index of the domestic steel industry can be increased by 1.5 percentage points, which can correspondingly improve the bargaining power of Chinese steel mills against foreign mines and enhance the global voice in the iron and steel industry chain.

Looking back in history, the global iron and steel industry has experienced many large-scale "mergers and acquisitions" in the past 100 years: the first occurred in the United States at the beginning of the 20th century, but also produced the world's first steel mill-American Iron and Steel Company; the second occurred in Japan in the 1970s, Japan's eight banner iron and Fuji iron merged into Nippon Railway, since then, Nippon Railway has maintained the status of "first in Japan and second in the world" for a long time. The third occurred in Europe from the late 1990s to the beginning of this century, creating Arcelor, the world's largest steel group at that time. The fourth is since this century, Mittal led mergers and acquisitions across North America, Europe, Asia, South America, Africa and other regions. Mittal ranked first in the world in 2005 and reorganized the world's second Arcelor in 2006, becoming the global steel giant in one fell swoop.

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