Seeking synergy
China has set a goal for the country's top 10 steel makers to account for 60 percent of the country's total steel output by 2025, according to an industry guideline released in March 2015. The current figure is about 34 percent, analysts said.
It remains unclear how the restructuring of Baosteel and WISCO will proceed.
It could be a merger between equals, such as the deal between China CNR Corp and CSR Corp that formed CRRC Corp in September 2015.
Or, it could be that one company takes over the other, like what happened when China Minmetals Corp merged with China Metallurgical Group Corp in December 2015, with the latter as a subsidiary of the former.
"Who ends up take a leading role in the restructuring will be a major problem because both Baosteel and WISCO are powerful SOEs," Wang Danqing, a partner at Beijing-based consultancy ACG, told the Global Times on Monday.
Analysts predicted that Baosteel will probably take the lead in the restructuring, given it is a bigger company with healthier finances.
WISCO reported a net loss of 7.5 billion yuan ($1.13 billion) in 2015, the biggest loss among all listed companies on the mainland stock markets.
Baosteel managed to report a profit of 961 million yuan in 2015, though it still represents a 83 percent year-on-year drop.
"The fact that both Baosteel and WISCO are overseen by SASAC makes the deal easier," an official from the China Iron and Steel Association, who declined to be named, told the Global Times Monday.
However, many steel companies are supervised by different regulators. Some are overseen by local governments. Others are overseen by the central government. So merging companies with different supervisory bodies poses additional challenges.
In one notable case, there have been efforts going back years to merge the SASAC-regulated Anshan Iron and Steel Group with Benxi Iron and Steel Group, which is controlled by the government of Northeast China's Liaoning Province. But no tangible progress has been made so far.
The fact that WISCO Chairman Ma Guoqiang used to work for Baosteel will make the restructuring easier, analysts said.
But the ACG consultant Wang warned that the merger faces many hurdles.
"Integration at the operational level, such as procurement, production and sales, will take a long time," he said, adding that it will be difficult for both companies to be seamlessly integrated.
Amid efforts to cut capacity, China's total steel output is projected to decline further in 2016 - to some 790 million tons, after dropping for the first time in 30 years to 804 million tons in 2015, Lange Steel's Wang noted.
