The merger of two state-owned enterprise (SOE) steelmakers in China, which has been negotiated since June 2016, has been officially announced by the two companies after receiving approval from China’s State Council.
Shanghai-based Baosteel, the larger of the two firms and considered more profitable, is to take over Wuhan Iron and Steel (WISCO), according to an online report from BBC News.
The report says the merged firm will operate under the name China Baowu Iron and Steel Group and its combined capacity of 60 million tonnes per year of steel output, if left intact, would make it the world’s second largest steel producer behind Luxembourg-based ArcelorMittal.
China’s central government has indicated that it sees mergers within its steel industry as a way to address the twin problems of excess capacity and red ink within the steel sector.
An analysis posted by Bloomberg News in late June 2016, when news of the merger discussions was disclosed, implied that without government prompting, it is uncertain whether Baosteel, which is profitable and considered to be well-managed, would have had an interest in WISCO. Wuhan City-based WISCO lost $1.1 billion in 2015 and reportedly made a series of unprofitable investments in iron ore mining and production.
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