China steel maker buys control of rival
(iht.com)
Updated: 2005-12-21 22:06

Buying the controlling stake in Liuzhou Steel may also help Wuhan Steel win approval for a plan to build a steel mill at Fangcheng Port in the southern province of Guangxi, with a capacity of 10 million tons a year, to tap demand from local units of carmakers like Toyota. It is competing with a proposal by Baosteel to build a plant in Guangdong Province with an annual production capacity of 20 million tons.

China is restricting lending to smaller producers to curb overinvestment. Any capacity expansion must be accompanied by the closure of obsolete mills, the government said in a policy statement released on July 20.

The government has said it is unlikely to approve all of the projects planned in southern China. Wuhan Steel may close part of Liuzhou Steel's existing works to gain approval to expand in Fangcheng, analysts have said.

"Wuhan Steel has a winning edge over Baosteel by taking over Liuzhou Steel," said Lin at Guotai. "But it could be too optimistic to say that Wuhan Steel will receive approval within two years to build the plant, given that the government is trying to slow industry expansion."

China wants to limit production capacity to about 400 million tons a year in the next five years to slow expansion that has led to the present glut and driven up raw material costs. Chinese output capacity jumped 35 percent to 419 million tons last year, while consumption may be about 300 million tons this year, the government said in June.