China steel companies create JV to foster industry consolidation

China’s three major steel groups and a state-backed asset management company have create an asset management joint venture to offer financial support for consolidation in the steel sector.

Baowu Steel Group, Ansteel Group, Magang Group and China Orient Asset Management Co have invested 2 billion yuan ($291.30 million) to set up Huabao Metallurgical Assets Management Co, according to a statement issued by Magang on Monday.

Baowu will hold 37.5 percent of the new joint venture, while Orient Asset and Ansteel will take 25 percent each with Magang holding 12.5 percent.

“I hope each shareholder of Huabao could fully use their resources...to actively manage the non-performing assets in steel and related industry through market measures,” said Wei Yao, chairman of Magang Group in the statement.

The establishment of Huabao will help China to meet its goal of cutting excessive production capacity in the steel sector by phasing out inefficient mills through mergers and acquisitions that will further streamline the industry.

By 2020, China’s top 10 steelmakers will account for 60 percent of national capacity, up from one-third currently, according to central government’s latest five-year plan.

In 2015, Baosteel acquired its rival company, Wuhan Iron and Steel, and formed the country’s biggest steel company Baowu Group.

“Huabao will aim to offer a new solution for consolidation in steel sector,” said Chen Derong, chairman of Baowu Steel Group in a separate statement.