A Chinese steel trader claimed that Wuhan Iron & Steel Co. Ltd. has laid off about a quarter of its workforce in the past five months as part of its merger with Baoshan Iron & Steel Co. Ltd. Wuhan denied the allegations.

"I was in Wuhan actually two months ago. I talked to the engineers, I talked to the production manager, I talked to the actual operations people, and they told me that, for the previous three months, 25% of the labor force has been laid off in Wuhan," Herrick Lau, CEO of Crownia Holdings Ltd., told SNL Metals & Mining.

"They are saying that might still carry on for a few more months."

In December 2015, Wuhan denied it was looking to lay off more than 6,000 workers as part of a downsizing plan, and the company continued to reject the layoff claims.

Spokesman Zhang Wencheng told SNL that the claims were groundless.

"There has not been any major layoff in Wuhan Iron in the past months and we have no plan for a 25% layoff in the future," he said, adding that there will be some "reforms" within the new group as the merger continues.

Baosteel declined to comment, but revealed in October that it is considering layoffs once the merger is complete.

The 3 billion-Chinese-yuan tie-up of two of China's largest steelmakers is part of the government's drive to cut overcapacity.

The newly formed company will be named China Baowu Steel Group, which will be 52.1% owned by Baosteel and 13.48% owned by Wuhan Iron.

According to Crownia's Lau, the merger, which has received the backing of China's State Council, will trim steel production by between 25% and 30%.

SNL Metals & Mining is an offering of S&P Global Market Intelligence.

As of Oct. 31, US$1 was equivalent to 6.77 Chinese yuan.