The Chinese steel industry just soldered together more of its competition. Panzhihua Iron & Steel, which was already a major player in the steel industry, became that much larger with its purchase of PZH Steel.
A Complex Deal
The new company will trade under the PZH Steel Name and returned back to the market last Wednesday. The newly created company has also absorbed the assets of other metal making firms as a clause to the purchase. The company now includes Sichuan Changcheng Special Steel and Chongqing Titanium after a $1.1 billion stock deal merged the companies. No cash was exchanged; instead, the firms simply re-arranged stock to complete the deal and form one of the largest steel makers in China.
Moving up the Ranks
Prior to the merger, the company was the 13th largest steel producer in China. Competition in the Chinese steel industry is strong as the population of more than a billion people look to further expand Chinese cities into the rural farmlands. Construction in China is still strong, pumped up by further stimulus infusions and lower steel prices. The company produced 7.5 million tonnes of steel in 2008 and will only continue to increase output as infrastructure improvements require more and more of the metal.
A Centrally Planned Enterprise
China has put forth tremendous energy to help its steel making firms better compete in a global marketplace. Despite the natural inability to ship large quantities of steel, the prices for the commodity are generally standard across the globe. China has a competitive advantage, however, in inexpensive labor and man hours needed to create tonnes of the metal used in large construction products both domestically and internationally. Since the slowdown in US housing construction, however, the profitability of steel making companies has been tested. As miners seek higher prices for their commodities, mining companies are producing lower amounts of iron ore that is desperately needed to shore up supply in the steel industry.
Banking on Chinese Steel
Traders who enjoy merger and acquisition deals can profit from Chinese steel companies, where a merger is a possibility at any time. As a whole, commodity producers in China have seen a fair amount of consolidation as China aims to control as much natural resources as is possible, regardless of the continent. Recent deals in Australia and even in the Middle East ensure that the country will forever have a large stockpile of natural resources.