Aug 06, 2010 02:36 PM

Wang Yifang on Steel's Makeover


China's largest steelmaker Hebei Iron and Steel Group is only two years old, but it's setting the pace for an integration movement that's changing the face of the nation's steel sector.

The general manager of the 2-year-old group, Wang Yifang, described the ongoing process in an exclusive interview with Caixin. Excerpts follow:

Caixin: How far is Hebei Iron and Steel into its integration? When will it be considered complete?

Wang Yifang: We have completed the "seven unifications" we set out to accomplish when the group was formed: unified planning and management, asset management, capital management, capital operation, personnel management, marketing management, and procurement of raw materials. Our next step is to further deepen and refine the integration.

Caixin: What is your view of cross-region acquisitions in the steel industry?
Wang: The first obstacle one encounters in an inter-province restructuring involve the cultural differences between companies. More often than not, one will be at a loss as to where to begin. Second, some steelmakers such as Handan Steel and Tangshan Steel did not need to be acquired by enterprises from other provinces, as these kinds of enterprises may not be more advanced than us in terms of management.

Third, some steelmakers that were acquired did not really wish to be acquired and managed by another company. They were just looking at the investments and developments of the company that acquired them. Fourth, some coastal steelmakers have their own resources and, as such, do not need to make acquisitions in other provinces inland.

Caixin: What difficulties does one face in acquiring and integrating private steelmakers?

Wang: Acquisitions of state-owned enterprises by state-owned enterprises and acquisitions of private enterprises by state-owned enterprises are the same for Hebei Iron and Steel. The purpose is to allow the group to grow in size and strength.

Private enterprises hope we will acquire them directly. However, we cannot waste our resources on junk. It's likely that the facilities at some companies are out of the question.

Caixin: The Chinese government and steelmakers across the country hope to increase their bargaining power in iron ore supplier negotiations through acquisitions and restructuring. Is this likely?
Wang: The supply and demand relation is the biggest reason why we are at the receiving end of iron ore negotiations. China is too reliant on iron ore imports. At the same time, Chinese companies are small and scattered, and they have failed to combine their strengths. As such, M&As and restructurings are a good alternative. Second, there are too many iron ore trading companies in China; this also calls for integration and correction.

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