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China's Baowu on track to be world's largest steel producer

  • Author
  • Analyst Jing Zhang
  • Editor
  • Zac Aiuppa
  • Commodity
  • Metals

Singapore — China's biggest steelmaker Baowu Steel Group produced 96 million mt of crude steel in 2019, according to Baowu's website this week.

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The state-owned company was likely the world's biggest steel producer in 2019, as ArcelorMittal trimmed output in response to weak demand in European markets. EU-based ArcelorMittal produced 92.5 million mt of crude steel in 2018.

Steel output: Baowu Steel and ArcelorMittal

Baowu's production came from its subsidiaries Baosteel Group; Wuhan Steel Group, or Wugang; Maanshan Iron & Steel Group, or Magang; and Chongqing Iron & Steel, or Chonggang. Baowu currently has crude steel capacity of around 98.5 million mt/year.

In 2018, Baowu, consisting of just Baosteel and Wugang, produced 67.43 million mt of crude steel.

Baosteel, Wugang and Magang are directly owned by Baowu, while Chonggang is indirectly owned by Baowu through Siyuanhe (Chongqing) Steel Industry Development Equity Fund.

Baowu and a private steelmaker Desheng Group own 53.33% and 45.33% of the equity fund, respectively. Both have restricted voting power and have no day-to-day involvement in Chonggang's business. Siyuanhe Equity Fund, based in Shanghai, manages Chonggang's business as a general partner of the fund with a 1.33% stake.

Baowu recently signed an agreement with Siyuanhe Equity Fund to take over all of the shares and take control of Chonggang. The share transfer is expected to be completed by June 2020.

At the same time, Baowu has also been working on acquisitions of other Chinese steel mills, according to some market sources.

Baowu took a 15% stake in Shougang Co in November 2019, but it remains unclear if Baowu will eventually hold a majority share.

"It's just a matter of when, rather than if, Baowu's crude steel capacity will breach 100 million mt/year through further consolidation," a market source said.

-- Analyst Jing Zhang, jing.zhang@spglobal.com

-- Edited by Zac Aiuppa, newsdesk@spglobal.com