Chinese group Sangang aims to increase capacity

The Chinese government-backed Fujian Sangang group acquired a bankrupt steel mill in western China, which would allow the company to expand its capacity later.

The acquisition is part of a trend supported by the Chinese government to replace steel capacity between regions in the country to promote industrial consolidation and reduce plant concentration to reduce air pollution in its industrial centers.

Fujian Sangang will pay 1.81 billion yuan (US $ 260.71 million) for 1.22 million tonnes of pig iron and 1.35 million tonnes of metal processing capacity located at a plant owned by Laiwu Steel Co in northwest China in Xinjiang. Laiwu is a subsidiary of the state-owned Shandong Iron and Steel Group.

Sangang won the opportunity to acquire the bankruptcy plant at an auction at a local center. The facility has a minimum price tag of 640 million RMB.

Laiwu's capacity is located more than 5,000 kilometers (3,100 miles) from Sangang's headquarters in Fujian province in southeastern China.

The deal reflects the growing trend of cross-industry steel capacity trading in a global steel producer. China has tried to reform its steel sector by cutting surplus and obsolete capacity by banning new capacity in some areas.

At least 14 regions and provinces in China, including the top five steel centers Hebei, Jiangsu, Shandong, Shanxi and Liaoning, will not be encouraged to supply iron and steel from other regions, according to the Industry Ministry.