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Baosteel and Wuhan Iron and Steel Corporation (WISCO), two major steel producers in China, have announced that they are planning a strategic restructuring.

The two groups said the restructuring is still at early planning stage and is awaiting approval from the authorities.

The announcement came as China's top economic planner said the country is aiming to cut its steel production capacity by 45 million tonnes this year.

On June 26, Wuhan Steel announced that its group Wuhan Steel Group is planning a merger with Baosteel Group. In similar lines, Baosteel also notified the same announcement. This is possibly the largest M&A (Merger and Acquisition in China’s steel industry.

Baosteel-WISCO will be China’s Largest and World’s Second Largest Steel Maker

Baosteel Group which produced 34.938 million tons of crude steel in 2015, ranking 5th in the world. Wuhan Steel Group produced 25.776 million tons in the year, ranking 11th. There merger will make China largest steel maker with an annual production of 60 million tons. They will become world’s second largest steel maker just following ArcelorMittal’s 97.136 million tons.

Largest Silicon steel and HRC production will No.1 in the world

Currently, Wuhan Steel is the world’s largest silicon steel producer with annual 1.92 million tons of CR silicon steel capacity (0.6 million tons of oriented silicon steel capacity). Baosteel has 1.3 million tons of CR silicon steel capacity (0.3 million tons of oriented silicon steel capacity). After merged, the giant will further consolidate its position in the world silicon steel industry.

Baosteel Group has an annual 31.35 million tons of capacity. Wuhan Steel Group has 14.63 million tons of capacity.

Trade Cases Against Chinese Steel

With rising steel exports from China, several countries were forced to impose trade barriers in a bid to protect their domestic industry. With this possible merger it is clear that Chinese steel industry is heading towards a consolidation stage.