Beijing: China's largest steel producer, Shanghai Baosteel, has set its eyes on Baotou Iron and Steel Group after global steel baron, Lakshmi Mittal's bid for a 50 per cent stake in the Chinese company faltered.
Board chairman of the Baotou Iron and Steel Group, Lin Donglu said that Baosteel is in talks with his company for a merger.
The consolidation of steel businesses in China is key to the profit prospect of steel plants with annual production capacity of less than ten million tonnes, Lin, also a deputy to the National People's Congress (NPC), the parliament, at the ongoing NPC annual session.
Shanghai-based Baosteel is seeking acquisition targets nationwide. It acquired 69.61 per cent of the stocks of Xinjiang Bayi Iron & Steel in January, Lin said, taking the acquisition as a wise move.
"The restructuring is in line with the government policy of encouraging consolidation in the steel sector and a win-win strategy for all since we can share technology, capital and sales network," he was quoted as saying by Xinhua news agency.
Liang Tiecheng, director of the Regional Reform and Development Commission in north China's Inner Mongolia Autonomous Region where Baotou is located, said Baosteel had proposed to purchase a controlling stake of Baotou Iron & Steel Group. But the request has not been decided.
Baotou Iron & Steel produced 7.48 million tonnes of crude steel last year, compared with 22.5 million tonnes from Baosteel.
Liang, an NPC deputy, said the potential cooperation with Baosteel is a major step to boost Baotou's steel production capacity to 15 million tonnes from the current ten million tonnes.
The Baotou Iron and Steel is faced with growth bottlenecks as the profit margin from traditional steel products has become very thin, Liang added.
China plans to establish two to three steel conglomerates with an annual production of over 30 million tonnes each by 2010 through consolidation, according to the National Development and Reform Commission.
It also expects the nation's top 10 domestic steel companies will control more than half of the country's total steel output by then.
Earlier this week, Lin had confirmed that Mittal Group had wanted to acquire 50 per cent stake in Baotou but talks failed due to regulatory problems.
"We are not talking about any actual cooperation anymore," Lin said.
China's steel industry regulations bar overseas steelmakers from taking a controlling stake in a joint venture.
"Because Arcelor Mittal wants to take a stake of 50 per cent or so in the venture, we failed to negotiate a deal," Lin said.
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