China Steel Industry - Mergers and Acquisitions Will Be Intensified

Market Analysis

China's steel industry is among the world's major industries and is registering the fastest growth rate not only in terms of production but consumption also (China is the world's largest steel consumer). The country expanded its steel-making capacity to meet the demand of its rapidly growing economy. Basically, strong economic growth and cheap production base are the major driving forces for rise in steel consumption.

The price and productions correction will bring China into a real leader in the world steel industry.

Because China's steel industry is way too fast to expand by the economic bubble, the price and the productions are already been unreasonably manipulated. However, China will be still the production and consumption leader of steel after this correction. China is the fastest development country with the most population, and the recently $600 Billion economic aid plan put into infrastructure.

Why would Mergers and Acquisitions in China steel industry intensified?

1. The market share issue

"Chinalco is starting to be a consolidator of the Chinese non-ferrous industry ... (And) the steel industry has got to consolidate," said Michael Komesaroff, managing director of Urandaline in Australia. "Ironically, one of the ways it could (be forced to) consolidate is a significant increase in iron ore prices," said the consultant specializing in China's capital-intensive industries. China produces more than a third of the world's steel, but Beijing lacks a forceful.

The 80% of steel market shared is owned by top 5 steel firms in Japan, but in china, as many as top 60 steel firms own 80% of total market shares. This indicated China is so lack of consolidation. Many small steel firms are running in negative revenues, they can be alive because of the steel bubble in China.

2. The government now injection huge money into infrastructure, they will get their consolidation effort in full of speed.

"If the policies become clearer, the euphoria could continue," said Huang Xian bin, an analyst for Cinda Securities.

Stocks in toll road operators and steel makers rose after the Ministry of Transport said it would spend 1 trillion Yuan ($146 billion) on building highways and rural roads as part of the stimulus.

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3. The timing is just right.

Too many small steel in china, they compete each other with a very little revenues, the shut down in the economic downturn but will eventually running again when it gets better, it is a recycling. In order to prevent this happen again, China will be forced to get those company merger into few steel giant to stabilize the steel industry.

"If the policies become clearer, the euphoria could continue," said Huang Xian bin, an analyst for Cinda Securities.

Now it is the opportunity to pick your steel stock which will be possible to be acquired or merger. From the insider information, the big steel will be start looking for small, having financial difficulties, solid client bases steel company to acquire. China government will cut deepening rate for this field of A&M to boost the fast weakening steel industry.