China's steel industry to have more consolidation

China's steel industry is likely to see an increasing number of consolidation in 2009 to shoulder the impact of the unfolding global financial crisis, compared with 17 mergers and acquisitions last year, Monday's China Daily reported.

Most steel makers have been in the red since last October. Statistics from China Iron and Steel Association showed 62 percent of 71 large and medium-sized steel producers the group monitored had posted losses totaling 29.1 billion yuan ($4.26 billion) in December 2008.

Steel prices in the Chinese market will decrease 20 percent to 35 percent in 2009 with industry profits declining 11 percent to 32 percent, according to Zhou Tao, Sinolink Securities analyst.

Industry insiders considered consolidation the best way to cope with the situation amid gloomy market prospect.

On March 1, Baosteel, China's leading steel maker, announced its plan to join with Hangzhou Iron and Steel Group Company in taking over and restructuring a third firm, Ningbo Iron and Steel Co.

More mergers and acquisitions are expected now that many of the country's smaller steel companies have been out seeking shelters from stronger market players.

Such market prediction coincided with government expectation. A stimulus plan for the steel industry issued in January by the State Council, or the Cabinet, encouraged realignment between businesses.

The governmental plan targeted at fostering several globally competitive large-scale steel groups with production capacity of 50 million tons a year each and the top five steel groups will likely account for 45 percent of the country's total capacity.

Major state-owned steel companies, such as Baosteel, Angang Steel and Wuhan Iron and Steel Group, are expected to take the lead in industry consolidation.