China’s Steel Giant Baoshan to Consider Future M&As to Increase Production Capacity

China’s Steel Giant Baoshan to Consider Future M&As to Increase Production Capacity

Xu Wei

Date: Wed, 04/11/2018 - 18:36 / source:Yicai
China’s Steel Giant Baoshan to Consider Future M&As to Increase Production Capacity
China’s Steel Giant Baoshan to Consider Future M&As to Increase Production Capacity

(Yicai Global) April 11 -- Baoshan Iron & Steel Co. will focus more on capacity optimization in the future but does not rule out future mergers and acquisitions in a market-oriented manner at the right time and reasonable valuation on the premise that synergy can be achieved, said senior officials of China's steel giant at the company’s 2017 annual performance briefing. 

Against the backdrop of strict control over new capacity in China’s steel industry, mergers and acquisitions may be a quick way to increase production capacity, said Wu Kunzong, chief financial officer of Baoshan, during the briefing yesterday.

To achieve 100 million tons of steel capacity is the future goal of China Baowu Steel Group Corp., the parent company, Wu revealed. Baowu Steel currently has a production capacity of 70 million tons, ranking first in China and second in the world. This means that there is still room for growth to reach the group's capacity goal, Wu pointed out.

Impact of US Tariffs on Baoshan

Wu, along with Wang Juan, board secretary of Baoshan, also responded to questions about the impact of the US-China trade friction on the company at the briefing. The continuous escalation of trade disputes between China and the United States has brought instability to global trade and will also directly lead to a decline in China’s steel exports, they said.

It may also affect the exports of steel downstream businesses, resulting in changes in demand in major sectors such as automobiles, machinery, shipbuilding and oil and gas, Wu stressed.

Trade protectionism against China’s steel exports will have certain impact on the company's export business, Wang said. The proportion of the company's exports to the US accounted for 4 percent of the total exports which mainly includes tin plating and silicon steel products.

At present, the company is aware of possible risks and challenges and has set up management teams to study countermeasures and to reduce the risks to a manageable level.

Given the trade dispute between the world’s two largest economies, China's steel demand this year will decline compared with last year, and the overall level of steel prices may be slightly lower than that in 2017.

Last year, Baoshan Iron & Steel’s annual revenue was about CNY289 billion (USD46 billion), up 17.4 percent from 2016 and net profit attributable to shareholders of the listed company amounted to CNY19.1 billion, a surge of nearly 111 percent from the previous year.

Its total profit was the highest among Chinese steel companies, while it ranked third among global steel companies that have disclosed annual reports and came in second by profit per ton among steel companies with more than 20 million tons of production worldwide, according to its 2017 annual report released on April 9. 

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Keywords: Baoshan Iron & Steel, M&A, Trade Friction