It’s hard to claim that the foreign media in China is overlooking important stories when there’s political unrest out West, so I’ll forgo the finger-pointing and merely suggest that – at some later date – it’s worth looking into the momentous importance of two pieces of somewhat related steel-related news from the last week. Both are arcane, I suppose, but they have serious consequences for China-based manufacturers – both Chinese and foreign – who crave the world’s most popular metal.
Event #1. On Wednesday, the National Development and Reform Commission [NDRC] approved Baosteel’s acquisition of Guangdong-based Shaogang Steel and Guangzhou Iron & Steel. For those who don’t follow the industry – Bao is China’s largest steelmaker, very state-owned, and extremely influential in Chinese industrial circles. The two acquired companies are also very large and very state-owned. I’ll discuss the consequences in just a moment.
Event #2. Actually, more a set of events. According to the Wall Street Journal and other outlets, “spot” purchases of iron ore from Australia’s Rio Tinto are being held up at Chinese ports [the China Iron & Steel Association is denying this - unconvincingly]. Briefly – most large steelmakers negotiate annual “bench price” contracts for iron ore, leaving smaller steelmakers to purchase their ore on the more expensive “spot” market. In China, Baosteel is the designated negotiator for China’s state-owned steelmakers. Thus, the net effect of a delay in “spot” shipments will be felt – disproportionately – among China’s smaller steel makers.
And that may very well be by design.
For at least the last five years, the NDRC has made no secret of its desire to consolidate China’s steel industry into a closed association ruled by Baosteel, Anshan-Benxi Steel, Shougang-Tangshan Steel, and Wuhan Iron and Steel that – by 2020 – should control roughly 70% of China’s steel production. It’s no accident, either, that these four companies are state-owned, and – though they may be publicly listed – they are very much creatures of the Old Economy.
Last month Caijing had an interesting piece on the improving prospects for China’s private steelmakers that focused on the largest one – Shagang – in Jiangsu Province. Among the revelations: Shagang’s current survival and success is largely predicated upon a close relationship with … Baosteel. I touched on some of these issues in a recent piece for the National Interest.