Posted on 27 Feb 2025
Steel industry consolidation in Central China's Henan province is set to advance further, with Anyang Iron and Steel Co (Anyang Steel), the Shanghai-listed arm of the province's largest steelmaker Anyang Iron and Steel Group Co (Anyang Steel Group), announcing a deal with its parent to take a two-thirds share in a large (and profitable) iron ore miner while relinquishing control of two other steel-related firms currently losing money.
At first glance, the agreement announced on February 25 appears to be just financial housecleaning on the part of the Henan government. However, the deal aligns with the central government's encouragement of mergers and asset restructuring to increase steel industry concentration, control capacity expansion, and reduce the excessive competition among mills that leads to price wars, as Mysteel Global has reported.
The jewel in the crown of the agreement is a prominent iron ore mining company based in Wugang city in south-central Henan named Wuyang Mining Co, currently majority owned by Anyang Steel Group. Wuyang Mining hosts iron ore reserves of approximately 323 million tonnes, has an iron ore concentrate production capacity of 1.2 million tonnes/year, and during last year's January-September period reported a net profit of Yuan 115 million ($15.8 million).
Under the planned assets swap, Anyang Steel intends to acquire 65.4% of the miner from its parent while Anyang Steel Group relieves Anyang Steel of investments that are eroding the listed steelmaker's bottom line.
The Angang Steel assets that the Group company will acquire are the former's 78.14% equity stake in Angang Group Yongtong Ductile Cast Iron Pipe Co (Yongtong), a firm based in Anyang city in Henan and boasting a production capacity in cast iron pipes of 940,000 t/y, according to its website. Yongtong posted a net loss in the first three quarters of 2024 of Yuan 69.4 million, according to Anyang Steel's announcement.
The Group company is also acquiring Anyang Yuhe Yongtong Pellet Co (Yuhe), a maker of iron ore pellets located in Anyang city and originally owned 75% by Anyang Steel and 25% by Brazilian miner Vale but acquired fully by Anyang Steel in December 2021. It has a pellet production capacity of 1.2 million t/y and during the same nine months of last year incurred a net loss of Yuan 8.07 million.
Anyang Steel had announced in late January that it was offloading Yuhe onto its parent, following its initial asset swap announcement made on December 12 last year.
Anyang Steel Group is taking all of Anyang Steel's stake in the pellet maker, as well as some of the latter's environmental protection assets with a net value of about Yuan 1.1 billion that include a wastewater treatment facility, Tuesday's release indicated. Anyang Steel Group, headquartered in Henan's Zhengzhou city, has a finished steel production capacity of over 10 million t/y.
By divesting itself of loss-making operations and acquiring upstream mining resources, Anyang Steel could streamline its business portfolio, reduce its environmental protection operation costs and enhance the synergy of its steel industry chain, market insiders remarked.
"This transaction will become an important measure for the company to improve asset quality and operating performance," Anyang Steel declared in the announcement.
A victim of the Chinese steel industry's slowdown like so many others, Anyang Steel has been operating in the red for three consecutive years, recording net losses of Yuan 3 billion in 2022 and Yuan 1.56 billion in 2023 respectively. Moreover, in its latest annual performance forecast for 2024 released on January 23, the company warned shareholders that it was anticipating reporting a net loss of Yuan 2.95 billion for last year as well, Mysteel Global notes.
Anyang Steel's losses are not an isolated case but rather, part of a broader industry trend, with steel prices and profitability declining due to the imbalance between supply and demand. As such, China's steelmakers are generally focusing on cost reduction, efficiency improvements, and transitioning their businesses towards high-end, green development.
In Tuesday's announcement, Anyang Steel had emphasized that the transaction was still in the planning stage, and that no formal agreement had been reached. However, it seems unlikely that the deal will fail to proceed. After all, the Henan provincial government is intimately involved in the steel firm and has a vested interest in securing its future.
Back in early 2023, the Henan government had announced ambitious plans for creating a provincial steel group to integrate and develop local steel capacities and whose annual steel production capacity would exceed 20 million tonnes, as reported.
The provincial government's plan is to establish three key steel cities and five steel bases (specialized in making different types of steel) throughout Henan under the umbrella of one consolidated steel entity headed by Anyang Steel Group.
In March of 2023, the government established a company named Henan Iron & Steel Group Co (Henan Steel) to act as the vehicle for integrating and developing the province's diverse and widely scattered steel firms, and in January last year, the provincial government-owned Capital Operation Group transferred the 100% stake it had held in Anyang Steel Group to Henan Steel.
The government's next task of convincing the province's small, privately-owned or locally-owned steel firms to embrace its vision would be made almost impossible if Anyang's listed arm keeps posting large financial losses.
Source:Mysteel Global
