Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
China Commodity Call
Coming together: M+A in China steel
Following on from our resources team’s conference call on Asian steel
mergers and acquisitions earlier this week (ask your Macquarie sales contact
for replay details), in this issue we review consolidation in China’s steel
industry over the last year. We are cautiously more optimistic on consolidation
in the medium term.
On the surface, progress is being made…
Using share of output from the largest mills as a measure of consolidation,
some progress appears to have been made in rationalising China’s steel
industry. In 2005, China’s top 5 and top 10 steel mills respectively produced
23% and 37% of the country’s crude steel output. On our estimates, these
shares rose to 30% and 45% in 2010 – still some way short of the target set in
2005 for the top ten mills to hit 50% of output.
…but benefits to the market have been mixed
The key benefit that the Chinese steel industry would gain from increased
consolidation would be the regulation of capacity additions. Unfortunately, the
M+A model that has seen “national champions” attempting to buy up smaller
players across China has not proved very successful in terms of integrating
management and reducing capacity expansion.
The M+A model appears to be changing
There appears to have been a shift over the last few years in the type of M+A
activity being promoted. Rather than waiting for the major mills to consolidate
the market, local governments are now being encouraged to bring together
smaller mills in their own provinces to form new groups. This drive for
localised consolidation avoids the difficulties associated with crossjurisdictional
acquisitions while providing an outlet for mills’ appetite for
growth.
Steel prices continue to push upwards after CNY
Chinese domestic steel prices have continued to push up after the Chinese
New Year, with all indications suggesting it is trader stock building driving the
increases. The commodity steel products (stockpiled in the greatest volume
by traders) were the strongest performers, with HRC rising 1.0% since the
holiday to RMB 4930/t ($641/t ex VAT) and rebar up 2.2% to RMB 4835/t
($629/t). Reports of end user transactions have been scarce this week and
Mysteel data on inventory at traders showed a strong rise in rebar stocks,
bringing absolute levels of inventory back to April 2010 levels.
We would point out that a sharp rise in trader inventory is typical at this time of
year. With end user demand, particularly from construction, at its lowest over
the New Year period, traders take the opportunity to build inventory with a
view to selling into the strongest demand period over March-May. As such, we
do believe that steel prices can continue to move up in the near term, but a
strong return of end user participation will be required to ensure the next leg
of price rises.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
China Commodity Call
Coming together: M+A in China steel
Following on from our resources team’s conference call on Asian steel
mergers and acquisitions earlier this week (ask your Macquarie sales contact
for replay details), in this issue we review consolidation in China’s steel
industry over the last year. We are cautiously more optimistic on consolidation
in the medium term.
On the surface, progress is being made…
Using share of output from the largest mills as a measure of consolidation,
some progress appears to have been made in rationalising China’s steel
industry. In 2005, China’s top 5 and top 10 steel mills respectively produced
23% and 37% of the country’s crude steel output. On our estimates, these
shares rose to 30% and 45% in 2010 – still some way short of the target set in
2005 for the top ten mills to hit 50% of output.
…but benefits to the market have been mixed
The key benefit that the Chinese steel industry would gain from increased
consolidation would be the regulation of capacity additions. Unfortunately, the
M+A model that has seen “national champions” attempting to buy up smaller
players across China has not proved very successful in terms of integrating
management and reducing capacity expansion.
The M+A model appears to be changing
There appears to have been a shift over the last few years in the type of M+A
activity being promoted. Rather than waiting for the major mills to consolidate
the market, local governments are now being encouraged to bring together
smaller mills in their own provinces to form new groups. This drive for
localised consolidation avoids the difficulties associated with crossjurisdictional
acquisitions while providing an outlet for mills’ appetite for
growth.
Steel prices continue to push upwards after CNY
Chinese domestic steel prices have continued to push up after the Chinese
New Year, with all indications suggesting it is trader stock building driving the
increases. The commodity steel products (stockpiled in the greatest volume
by traders) were the strongest performers, with HRC rising 1.0% since the
holiday to RMB 4930/t ($641/t ex VAT) and rebar up 2.2% to RMB 4835/t
($629/t). Reports of end user transactions have been scarce this week and
Mysteel data on inventory at traders showed a strong rise in rebar stocks,
bringing absolute levels of inventory back to April 2010 levels.
We would point out that a sharp rise in trader inventory is typical at this time of
year. With end user demand, particularly from construction, at its lowest over
the New Year period, traders take the opportunity to build inventory with a
view to selling into the strongest demand period over March-May. As such, we
do believe that steel prices can continue to move up in the near term, but a
strong return of end user participation will be required to ensure the next leg
of price rises.
No comments:
Post a Comment