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Baosteel reforms earn a credit-rating upgrade from S&P

Baosteel

Standard & Poor's has raised its long-term foreign-currency corporate credit rating on Shanghai Baosteel Group (Baosteel) to BBB-minus from BB-plus.

The outlook on the rating is stable.

The agency raised its rating of one of China's few profitable steel-makers after the company's efforts to reform paid off.

Standard & Poor's said the rating reflected the company's improved capital structure and cash-flow protection measures.

Baosteel has substantially reduced its debt after having completed debt-to-equity swaps in the merger of two weak steel mills, Shanghai Metallurgical and Meishan, under a government directive.

It has also succeeded in stemming the operating losses of the two mills.

The rating also reflected the steel-maker's strong market position as the company increased the output of high-value-added products and operated in a 'competitive cost position', Standard & Poor's said.

Other major steel-makers, such as H-shares Maanshan Iron & Steel and Angang New Steel, have been aiming to increase production of high-margin products and tighten cost-control measures to compete with an expected surge in imports after China's World Trade Organisation entry.

The domestic industry is concerned by an influx of cheaper and better-quality imports as the mainland phases out quota restrictions and tariffs on steel imports to meet its obligations as a WTO member.

Industry sources have estimated that steel imports to the mainland will reach about 20 million tonnes this year, slightly more than last year.

National output is expected to rise to about 160 million tonnes this year from about 140 million tonnes last year. But mainland steel-makers have been suffering from oversupply in low-end products, while they have failed to satisfy the domestic demand for high-value-added products.

The country has to import from South Korea and Russia to make up the shortfall.

Beijing has been trying to consolidate the steel industry through mergers among the mills, which are mostly owned by the central or regional governments.

In the process, the steel-makers upgrade production technology and trim bloated workforces to cut costs.

Since their merger, the Shanghai Metallurgical and Meishan mills have cut their headcount by more than 47,000, or 40 per cent of the workforce.

Baosteel, which reports directly to the State Council, has 13 per cent of China's fragmented steel market, and a much stronger position in high-value-added products, with a 42 per cent share of the market for thin-sheet steel.

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