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Ansteel Group to Buy into E United Group's Stainless Steel Mill in China

2014/09/09 | By Steve Chuang

Ansteel Group, China's fifth-largest steel and iron supplier by size, will reportedly acquire a 60% stake in Lianzhong Guangzhou Stainless Steel Corp., a stainless steel maker fully owned by Taiwan-based E United Group, a conglomerate of steel, realty and medical businesses, for at least NT$15 billion (US$500 million), according to insiders.

Lianzhong cost US$790 million to set up and became operational in 2006, boasting maximum annual output of 2 million tonnes of stainless steel to be a top-three supplier of its kind in China. Last year the company's actual output reached about 1.5 million tonnes, with turnover exceeding NT$100 billion (US$3.33 billion).

Impacted by fluctuating international prices of nickel, Lianzhong has remained mostly unprofitable since startup, with profits of RMB700 million in 2009, which, insiders said, is perhaps the key motivator for E United to sell the majority stake to Ansteel.

Despite Lianzhong's unprofitability, Ansteel looks to acquiring the firm as vital for developing its stainless steel business. Market observers say that Ansteel aims to add stainless steel to its current product mix, which mainly consists of carbon steel. Ansteel has been trying to set up its own stainless steel mills but has been hindered by the Chinese government's significant tightening of licensing for the business as part of its industrial upgrade and eco-protection policies.

Ansteel also sees Lianzhong as attractive investment for the firm is presently the only stainless steel supplier with integrated in-house production lines, from refinery to hot rolling and cold rolling, in China's southeastern region, coupled with its Guangzhou Province location to offer great growth potential as part of local supply chain.

Once the acquisition realized, directors from E United say that Lianzhong can take advantage of Ansteel's vast distribution channels in northern China to improve  sales in the future for mutual benefit, without ruling out the possibility of strengthening mutual cooperation on developing  China's steel market.

E United, Taiwan's largest private steel maker by size, reported consolidated revenue of about NT$300 billion (US$10 billion) in 2013, when Ansteel, who supplies mainly hot and cold-rolled steels, wire rods and steel plates, raked in about NT$750 billion (US$25 billion). The acquisition would be the largest joint-venture project in terms of value in the steel industry across the Taiwan Strait. (SC)