It reported that China efforts to consolidate its steel industry received a fillip recently with news that Jinan Iron and Steel is moving ahead with a stock offer for Laiwu Steel Corp.

The deal, which comes after a tortuous almost year long courtship will see shareholders of Laiwu receive 2.42 shares in Jinan for each Laiwu share. That values Laiwu at CNY 3.8 billion. After the share swap Laiwu will then be delisted. The Chinese government wants the domestic steel industry to consolidate into 10 to 15 large players through mergers and acquisitions.

Mr Tim Wu sector consultant from China Steel Consulting said that in practice the merger mean little change, with both companies continuing to operate independently after the event. He said that “The integration of the business as well as the culture is much more difficult than the actual merger.”

In theory, Jinan and Laiwu, both of which are from the Shandong, a deal could make strategic sense promising better prices for raw materials and improved funds to purchase advanced technology.

Mr Xiaoming Yin steel analyst from Huatai Securities said yet, previous deals in the steel sector such as Baosteel merger with Guandong Steel Group and Wuhan Iron and Steel Group with Liuzhou Steel offer little evidence of the benefits of mergers.

He adds that it’s not even clear that bigger steelmakers have been able to negotiate lower input prices. Even Japanese and South Korean steelmakers whom are among the world largest and most centralized are still unable to get preferential pricing.

(Sourced from blogs.ft.com)