Angang's booth at an expo in Shanghai

June 21 -- Anshan Iron and Steel Group (AISG), the parent of Angang Steel (000898), confirmed media reports that it has obtained in-principle approval from the Ministry of Industry and Information Technology (MIIT) for its asset restructuring with Fujian Sansteel Group, the parent of Sansteel Minguang (002110), reports nbd.com.cn

According to a filing by Sansteel Minguang (002110) yesterday, it has not received notice of the approval by the MIIT.

Industry insiders said the approval will allow Anshan Iron and Steel Group to use northeast China as its base while entering markets in southeast and southwest China. 

The restructuring will help to improve industry concentration, accelerate the upgrading of the steel industry and is in accordance with the government's move to speed up the development of the West Cost Economic Zone in Fujian province, according to the MIIT. 

According to a filing by Sansteel Minguang at end 2010, AISG will become the largest shareholder of Fujian Sansteel Group, and the effective controller of Sansteel Minguang, once the MIIT approves the restructuring plan.

Qing Fenfen, a senior analyst at dailysteel.com, said the restructuring will help the horizontal development of Sansteel Group as AISG will invest in a cold-rolled plant with annual production capacity of between one million tons and two million tons.

In addition, AISG could help Fujian province complete a planned steel plant with six million tons of capacity which was previously suspended due to a government policy to eliminate outdated production capacity.

According to public data, Sansteel Minguang, the only producer in Fujian province which uses the coking, sinter and continuous casting process in steel production, has annual crude steel production capacity of four million tons and has half the share of Fujian's market.

AISG recorded crude steel output of 40.28 million tons in 2010 while Sansteel Group produced 5.6 million tons of crude steel. 

The market expects the integration to generate greater synergies for AISG. 

AISG obtained approval from the State-owned Assets Supervision and Administration Commission in May 2010 to restructure with Panggang Group, the parent of Panggang Group Steel Vanadium and Titanium (000629). 

According to Zhao Liming, an analyst with Hongyuan Securities, upon the completion of the acquisition, the business scope of Panggang Steel will be changed from steel production to the mining and non-ferrous metal businesses while Sansteel Group will focus on the production and deep processing of steel.

AISG’s cold-rolled steel plant in Putian, Fujian province, is expected to be put into operation by the second half of 2012, allowing AISG to produce 700,000 tons of cold-rolled plates and 300,000 tons of galvanized steel sheets, said an unnamed source.

According to the report, steel production capacity in Fujian province currently totals 10 million tons while demand hit 15 million tons.