Baoshan steel company will help Baotou Steel upgrade its product line and increase its added value, and Baosteel may better explore iron ore and coal resources in Inner Mongolia with the help of Baotou Steel, Xinhua news agency reported today.

The optimization will be based on the present 10 million tons of yearly output capability of Inner Mongolia-based Baotou Steel, according to a strategic cooperation framework signed by the two companies today.

"The revenue of every 10 million tons of steel is expected to double to US$10 billion and we will also double profit," said Cui Cheng, board chairman with the Baotou Steel Group.

In return, Baosteel may better explore iron ore and coal resources in Inner Mongolia with the help of Baotou Steel, Xinhua said.

The contract came after one-year of negotiations.

Shanghai-based Baoshan Iron & Steel Co, China's largest steel maker by output, is striving to become one of the world's top three steel companies, with a yearly output hitting 50 million tons to 80 million tons by 2010.

Xu Lejiang, board chairperson with Baosteel, told Xinhua that China has been tightening administration over the country's iron and steel industry as domestic and global markets need more high-value-added products.

"It's a general trend for steel companies to merge," Xu said. "The cooperation between Baosteel and Baotou Steel is a win-win move."

China, the world's largest steel maker, has been urging leading mills to merge with mid-sized ones and ordering the closure of small, outdated facilities to boost consolidation in the fragmented domestic industry.

Baosteel had output of 22.53 million tons of steel last year while Baotou Steel produced 7.48 million tons in the period, Xinhua said.