Metal Products News
- Steel industry to see more mergers
Date: 11-Dec-2007 Sources: (Shenzhen Daily)
THE Central Government could sweeten incentives for local governments to support mergers in the country's fragmented steel industry on fears that BHP Billiton's bid for Rio Tinto will leave it less bargaining power over raw materials supplies.
China has made little progress constraining investment in steel as booming demand underpinned profits. Indeed, many mills have expanded further, aggravating the country's pollution woes and exacerbating the tight competition for resources such as iron ore.
'The possible merger of BHP and Rio Tinto have pressured domestic steel mills to consolidate in order to have more say in iron ore price talks,'said Feng Fei, a researcher with the Development Research Center of the State Council.
China, the world's largest iron ore importer, is worried that BHP Billiton Ltd. will have too much power in deciding iron ore prices if it acquires Rio Tinto in its US$125 billion hostile bid.
China relies on the two Australian companies for about 40 percent of its imported iron ore and negotiations for the new contractual year are just getting under way.
Domestic steel mills are studying countermeasures to deal with the possible merger. Priorities will be to establish a State iron ore reserve and to consolidate to make its mills competitive.
'To consolidate the industry is one of our priorities next year,'Luo Bingsheng, general secretary of the China Iron & Steel Association, told a conference over the weekend.
'We need to establish steel giants which can compete against AcerlorMittal in the international market.'
China cannot produce enough raw material to feed its steel mills, and has to import about half of what it needs each year.
The association is urging the Central Government to provide financial support also to get the big steel mills, such as Baosteel Group, Wuhan Iron and Steel Co., to take over small and medium-sized rivals.
The push for consolidation is in line with the government's policy to promote a economy that is less destructive to the environment by eliminating smaller, polluting and energy-intensive plants. Local governments often fear takeovers will result in their plants being shut.
The subsidies will make up for local governments' lost tax revenues and help them cope with job losses arising from the restructuring.
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