Baosteel merger talks with Baotou Steel collapse

Merger talks between leading Chinese steel mill Baosteel and the Baotou Iron and Steel Group of Inner Mongolia have collapsed after four years of negotiations. The takeover bid by the Shanghai-based Baosteel, China’s second-gest steel producer, failed after the intervention of the local government in Baotou last month.

Baosteel’s rival, Anshan Iron and Steel, also known as Angang, was expected to move in with its own bid for the Inner Mongolian company, which raised its total annual steel capacity to more than 10 million tons in 2009. Angang, based in Liaoning province in northeast China, was last week given the go-ahead by regulators to acquire Panzhihua Steel and could eventually become the country’s gest steel mill as a result of the acquisitions.

China’s long-standing plans to consolidate its fragmented steel sector have been routinely blocked, with local governments reluctant to relinquish important sources of revenue to companies like Baosteel, which pay tax directly to the central government. China originally aimed to bring 50% of total national production capacity under the control of its top five mills by the end of 2010, but the figure stood at just 29% by the end of last year.