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Business deals

China's top steelmaker Baowu in talks to absorb No. 7 Shandong

String of acquisitions prompted by Beijing's push to consolidate industry

Workers at a plant run by Shandong Iron & Steel Group, the seventh-largest steelmaker in China.   © Reuters

SHANGHAI -- China Baowu Steel Group, the world's largest steel producer, has entered discussions to absorb China's seventh-ranked peer Shandong Iron and Steel Group.

Shandong's core subsidiary Shandong Iron and Steel Co. announced Wednesday that the parent company sent a notice that it has started negotiations toward a "strategic reorganization" with Baowu.

If a deal is reached, it would be the latest in a string of acquisitions by Baowu. In September 2019, the company bought a majority stake in Magang Group. Later that November, Baowu took a 15% interest in Shougang Group.

Magang and Shougang were China's ninth and sixth biggest steelmakers, respectively. The government has been restructuring the steel industry around Baowu in an effort to scrap outdated production facilities and reduce overcapacity.

Shandong produced 31.11 million tons of crude steel last year, according to the World Steel Association. If it is absorbed by Baowu, the combined output based on last year's figures would top 140 million tons.

Baowu would pull further away from its closest rival, Luxembourg-based ArcelorMittal, which saw crude steel production volume stand at 78.46 million tons last year.

In China's steel industry, earnings at several companies slumped during the first half of 2020 due to the coronavirus pandemic. But once the economy recovered, many companies moved to boost production, leading China to churn out a record 1.05 billion tons of crude steel last year. Shandong's earnings have been robust thanks to elevated steel prices.

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