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Steel Companies Will Start A New Round Of Large-scale Restructuring

Apr 08, 2018

Industry-wide profitability has increased dramatically

In 2017, the profits of steel companies increased significantly. According to data from the All-China Metallurgical Association, the labor productivity, production costs, and profits of private steel companies have increased significantly. Per capita annual output of steel is more than 400 tons higher than the industry average. The labor cost per ton of steel is about 200 yuan lower than the industry average. The profit rate of private enterprises was 6.32%, 3.62% higher than 2.7% in 2016; the average per-ton steel profit of private enterprises was 430 yuan, an increase of 336 yuan compared with 2016 of 94 yuan.

Specifically, Shagang Group achieved a profit of RMB 19.2 billion; Baowu Steel's performance forecast indicates that net profit will reach at least RMB 19.066 billion in 2017, which will increase by RMB 10.1 billion to RMB 10.8 billion compared to the same period of last year, an increase of 113% to 121% year-on-year. The Songshan Annual Report of Handan Iron and Steel Co., Ltd. shows that total revenue for 2017 was 26.038 billion, an increase of 86.35% year-on-year, and net profit was 2.517 billion, a year-on-year increase of 23.81 times, which was the highest level since its listing in 1997.

Song Jiping, chairman of the Tang and Song Data Group, said that in 2016 and 2017, the production capacity will reach 115 million tons, and the steel production capacity utilization rate will basically reach 80%, and the overcapacity situation will obviously improve. In particular, clearing out the "Ground Strip" directly drives the steel market price. The rebar price rose from RMB 3,460/ton in June to RMB 4,980/ton.

The effect of banning the "Ground Strip Steel" further showed that the phenomenon of "bad money driving out good money" was suppressed. Crude steel production of key enterprises in private enterprises was 299 million tons, an increase of 7.45% year-on-year; steel production was 290 million tons, an increase of 7.96% year-on-year. The output of crude steel of other small enterprises was 171 million tons, an increase of 1.26% year-on-year; the output of steel products was 414 million tons, a decrease of 28.11 million tons, a year-on-year decrease of 6.36%.

Wang Lianzhong said that the concentration of production to advantageous enterprises is a welcome phenomenon, indicating that enterprises with good production conditions and high quality steel products have grown at a higher rate than those steel companies with relatively low production conditions and low product quality, that is, changing “bad coins”. Eviction of good money."

The integration and reorganization of enterprises will advance in depth

"The current trend of cross-regional and cross-ownership enterprise integration is obvious." Wang Lianzhong said that corporate restructuring has started to become a trend. Many private enterprises are actively looking for opportunities to start restructuring and have made significant progress in the proportion of private enterprises accounted for more than 1/3 of the total. For example, Jiangxi Group reorganized Xining Special Steel; Shagang participated in the restructuring of Northeast Special Steel and played the advantages of the state-owned and private-owned enterprise systems; Jianlong Group carried out reorganization and integration with resource optimization as the core and integrated the former Haixin Steel, Beiman Special Steel.

In fact, the concentration of China's steel industry rebounded further in 2017: the total output of the top four companies in crude steel production accounted for 21.9% of the country's total, which was a 0.2 percentage point increase from 2016; the top 10 companies accounted for the national total output. 36.9%, up by 1 percentage point from 2016.

“The merger and reorganization of iron and steel companies is still in-depth development.” Wang Lianzhong said that to achieve the goal of achieving a 60% concentration of the steel industry in 2025, a large-scale restructuring is being planned. For example, Hebei Province plans to use Qian'an, Fengnan, and Wu'an Local Iron and Steel Group as its support, through joint reorganization to form three large-scale iron and steel groups with a regional steel market leading ability, mainly private steel enterprises; Shanxi Province also plans to adopt mergers and acquisitions from 27 Home steel companies fell to 10.

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