The Third Largest Steel Enterprise In The World?

As the cradle of China's iron and steel industry, the reorganization of Benxi Iron and Steel Group Co., Ltd. (hereinafter referred to as "Benxi Steel Group") has finally ushered in a new round of substantive progress.

Recently, Benxi steel plate Co., Ltd. (hereinafter referred to as "Benxi steel plate") issued a suspension notice, saying that the company received the notice from the indirect controlling shareholder Benxi Steel Group Co., Ltd., and learned that Angang Group Co., Ltd. (hereinafter referred to as "Angang Group") is planning to restructure Benxi Steel Group, which may lead to the change of control right of the company.

Angang Group Co., Ltd. (hereinafter referred to as "Angang Group") is planning to restructure Benxi Steel Group after the reorganization with Panzhihua Iron and Steel Group Co., Ltd.

"Merger and reorganization of steel enterprises is the current development trend," a researcher in the iron and steel industry of a securities firm in Beijing told the reporter of the 21st century economic report that restructuring can play a synergistic effect between the two enterprises, avoid excessive competition, improve the level of profits, and promote the technological transformation and transformation of enterprises. At present, China's iron and steel industry concentration rate is low, it is still necessary to actively promote inter industry restructuring.

Affected by the good news, on April 16, Benxi steel plate became one of the top five securities whose daily amplitude value reached 15% on April 16, closing at 4.46 yuan, up 0.45%, turnover of 422 million yuan, turnover rate of 2.75%, and amplitude of 16.02%. By the end of April 19, Benxi steel plate fell more than 5% to close at 4.23 yuan.

From the industrial level, if the plan is successfully completed, China will have a second big iron and steel group. According to the global top 50 steel enterprises list, the new steel group will become the third largest steel group in the world after China Baowu and ArcelorMittal.

Policy formation and integration expectation

In the northeast of China's old industrial base, the restructuring of the steel industry is speeding up.

In March this year, the national development and Reform Commission and the state owned assets supervision and Administration Commission of the State Council jointly issued the implementation plan for deepening the mixed ownership reform of state-owned enterprises in Northeast China, which clearly pointed out the direction of mixed ownership reform of state-owned enterprises in Northeast China and put forward more detailed requirements.

Previously, in an interview with the media, Xu Shanchang, director of the restructuring Department of the national development and Reform Commission, publicly said that the effective starting point of the reform of state-owned enterprises in Northeast China is the reform of mixed ownership. After that, on April 6, Liaoning Provincial People's government issued the 14th five year plan for national economic and social development of Liaoning Province and outline of long-term goals for the year of 2035, which clearly stated that during the "14th five year plan" period, Liaoning Province would promote the joint reorganization of central steel enterprises such as Angang and Benxi Steel, so as to cultivate world-class iron and steel enterprises.

Benxi Steel Group is the largest provincial state-owned enterprise in Liaoning Province, and the state owned assets supervision and Administration Commission of Liaoning province holds 80% of the shares. In 2019, Benxi Steel Group ranks 19th in the world with 16.18 million tons of crude steel output, and Anshan Iron and steel group ranks seventh in the world with 39.2 million tons of crude steel output. If the reorganization of the two is completed, the crude steel output will reach 55.38 million tons.

The quality of profitability of listed companies under the two groups is different. According to the 2020 annual report released by Angang, the company realized 100.903 billion yuan of operating revenue, down 4.44% from the previous year, and the net profit attributable to shareholders of listed companies was 1.978 billion yuan, up 10.69% over the previous year. Benxi Steel's 2020 annual performance express also showed that the company's total operating revenue was 48.685 billion yuan, down 7.69% over the same period of last year; the operating profit was 528 million yuan, down 19.42% from the same period of last year; affected by the withdrawal of brilliance's accounts receivable, the company's net profit decreased by 258 million yuan, and the net profit attributable to shareholders of Listed Companies in the final period was 400 million yuan, a year-on-year decrease of 28.05%.

Benxi steel plate is the "cash cow" of Benxi Steel Group. Combing the past financial data, it is found that more than 90% of the group's revenue comes from the production and sales of steel, most of which comes from Benxi steel plate, and the proportion of non steel business is less than 10%.

An industry researcher also pointed out in his research report that for many years, the main steel industry of Benxi Iron and Steel Group is limited by the influence of single product type and cost control ability. Although it has the self-sufficiency of nearly 8 million tons of iron concentrate every year, the cost advantage per ton of steel is not big. In addition, as an old industrial base in China, Benxi Steel Group has a large number of redundant employees, with more than 60000 employees on the job, and the per capita crude steel level has dropped to the lowest level in the industry. In terms of cost, the market covers the whole country, but the transportation cost is high. During this period, the transportation cost of the southern market has increased the overall transportation cost. The annual cost of financial and administrative expenses such as personnel and debt burden, interest expense and high salary of management personnel is as high as 10 billion yuan. From the perspective of direct profit index, from 2016 to 2019, the net interest rate of Benxi Iron and steel group was maintained below 1%, which were 0.05%, 0.09%, 0.59% and 0.38%, respectively.

Restructuring has become a trend

As early as August 16, 2005, Anshan Iron and Steel Group and Benxi Iron and Steel Group jointly reorganized and established Anshan Benxi Iron and Steel Group, and held the unveiling ceremony in Shenyang, but since then, there has been no substantial progress, and the reorganization has been stranded. According to an industry person, there is no absolute obstacle to the reorganization of state-owned enterprises. The key is how to realize the unification of talents, assets, production, supply and marketing.

As an old brand iron and steel enterprise in Northeast China, Angang Group also shows the latest strategic planning of the enterprise. Tan Chengxu, who became the chairman of Angang Group in October 2019, announced the development strategy and plan of Angang Group during the "two sessions" of this year, and put forward the strategic goal of "7531". That is, during the 14th Five Year Plan period, the scale of Angang Group is planned to develop into 70 million tons of crude steel, 50 million tons of iron concentrate, 300 billion level of operating income and 10 billion level of profits. However, the crude steel output in 2019 and 2020 is only 39.2 million tons and 38.19 million tons respectively.

Restructuring within the industry will give it the opportunity to quickly complete the program. The above-mentioned industry personage pointed out that at present, it is difficult to judge whether these goals can be achieved. However, under the current policy and market environment of integrating and restructuring the iron and steel industry and improving the industrial concentration, the realization of the goals meets certain conditions, and the follow-up depends more on enterprise operation and industrial chain management.

In fact, the restructuring trend of China's iron and steel industry has been reflected from 2019 to 2020 during the 13th Five Year Plan period. Jianlong group and Fangda group, the leading state-owned and private steel enterprises represented by Baosteel, merged a number of regional steel enterprises during this period, and the merger and reorganization of listed steel enterprises, as the industry leader, is expected to increase significantly during the "14th five year plan".

Carbon peaking and carbon neutralization have increased the intensity of environmental protection and production restriction, and objectively increased the expectations of the outside world for saddle capital restructuring. Li Jun, an analyst at Ping An Securities, also pointed out in his research report that the peak carbon emission depends on capacity control on the surface, but the deep premise is that the steel demand reaches the peak. Theoretically, enterprises still need to focus on green development, transformation and upgrading. Under the background of carbon peak and carbon neutral era, with the rapid development of China's steel industry into the mature period, improving the industrial concentration is conducive to coping with the transformation of industrial development stage, but also conducive to the steel in carbon emissions to concentrate resources to achieve the goal.

Another signal worthy of attention is that from March 20 to December 31, 2021, the 30% - 50% plan of Tangshan city will affect the pig iron output of Tangshan city about 30 million tons. According to the 15% converter scrap ratio, it is estimated that the impact on crude steel production is about 34 million tons. According to the 21st Century Capital Research Institute and Lange Iron and Steel Research Center, although the current industry production restriction is limited to Tangshan, under the carbon peak and carbon neutralization targets of various provinces and cities, the iron and steel industry, as a major carbon emission producer, may follow Tangshan's emission reduction efforts.

As a countermeasure, it is necessary to speed up the reorganization of iron and steel enterprises.

In September 2016, the State Council issued the guidance on promoting the merger, reorganization and disposal of zombie enterprises in the iron and steel industry. It is pointed out that by 2025, 60% - 70% of the output of China's steel industry will be concentrated in about 10 large groups, including 3-4 80 million ton iron and steel groups, 6-8 40 million ton iron and steel groups, and some specialized iron and steel groups.

According to the latest calculation data of 21st Century Capital Research Institute and Lange Iron and Steel Research Center, according to the cumulative output of crude steel of the top ten iron and steel enterprises, the concentration ratio of iron and steel industry (CR10) will be 39.2% in 2020. Although it will increase by 2.6% compared with that in 2019 and 5% higher than that at the end of the 13th five year plan, there is still a huge room for improvement.

From this point of view, the reorganization of saddlebone may be on the way and has to be launched.