By Gong Zhengzheng (China Daily)
Updated: 2008-03-12 09:01

China's steel sector, which is the world's biggest but fragmented, is expected to embrace unprecedented mergers and acquisitions (M&As) over the next three years, a top industry association leader said yesterday.

Zhang Xiaogang, chairman of the China Iron & Steel Association, said the sector, which is facing mounting iron ore and other material costs, will witness the most intensive M&A activity in the years to 2010.

"Many small steel mills will have to be amalgamated into big ones or disappear," said Zhang, also president of Anshan Iron & Steel Corp, one of China's top steel groups.

He said M&As will help boost the steel sector's concentration ratio to achieve a 2010 goal set by a steel industry policy in 2005.

"We are confident that combined production of China's top 10 steelmakers will be able to account for 50 percent of the country's total steel production by 2010," he said.

According to the policy, the government also expects the 10 biggest steel producers to control over 70 percent of China's steel production by 2020.

However, the ratio tumbled by 0.78 of a percentage point to 36.79 percent last year from 2006 as a result of rapid expansion of small steel companies, according to data from the steel association.

Meanwhile, crude steel production in China surged by 15.7 percent to 489.2 million tons.

The steel association predicted in January that production this year would grow by 6.3 percent to 520 million tons.

Zhang said the Anshan steel group, based in Liaoning province, will push forward a substantial merger with Benxi Iron & Steel Corp, a smaller steel producer in the province. The two companies in 2005 agreed to consolidate.

Deng Qilin, president of Wuhan Iron & Steel Group, another major player based in Hubei province, told China Daily that his company is in talks with Panzhihua Iron & Steel Corp in Sichuan province in Southwest China for a merger deal.

"We hope to achieve a consolidation as soon as possible. But it depends on when market conditions are mature and top leaders of the two companies see eye to eye on the matter," Deng said.

Over the past three years, the Wuhan steel group merged three smaller rivals - Echeng Iron & Steel Corp in Hubei, Liuzhou Iron & Steel Group in Guangxi Zhuang autonomous region and Kunming Iron & Steel Corp in Yunnan province.