(Xinhua)
Updated: 2008-03-20 20:21

China has approved two mergers involving major steel producers in a bid to further consolidate the sector.

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The National Development and Reform Commission (NDRC) announced on Wednesday it had approved Baosteel's acquisition of two steel makers in the southern Guangdong Province.

According to a NDRC statement, Shaogang Iron and Steel Co Ltd and Guangzhou Iron and Steel Co Ltd will be fully controlled by the Shanghai-based Baosteel Group, which will transform them into a new company headquartered in Guangzhou.

The top economic planner also approved a link-up between Wuhan Iron and Steel, a leading domestic steel maker, and Liuzhou Iron and Steel Co Ltd.

The move was meant to rationalize the steel industry, eliminate out-dated production capacity and sharpen the competitiveness of domestic steel enterprises, it said.

China's official industry policy states that by 2010, the crude steel output of the top-10 producers should account for 50 percent of the total, rising to 70 percent by 2020. The recent trend has been just the opposite, with figures indicating increased fragmentation. The production share of the top-10 steel makers declined to 34.66 percent in 2006 from 46.25 percent in 2001.

Luo Bingsheng, CISA secretary-general, said in November that "all the difficulties in the steel industry are directly or indirectly related" to the slow pace of mergers and acquisitions (M&A).

He said that reorganization of the industry should be based on the top four companies: Baosteel Group, the Anshan-Benxi Steel Company, the Shougang-Tangshan Steel Company and Wuhan Iron and Steel Group Corporation.

China has been upgrading its steel-making power by consolidating players with mergers and link-ups. Last month, officials in Shandong Province announced Jinan Iron and Steel Group and Laiwu Steel Group -- the sixth and seventh largest steel makers in the country, respectively, and both based in the eastern province -- would be combined into the Shandong Iron and Steel Group Co.

Under the provincial steel industry plan, the new group would have an annual output of 31.6 million tons, second to Baosteel, the country's largest steel producer.

In 2005, Anshan Iron and Steel Group incorporated the smaller Benxi Iron and Steel Group and formed the Anben Iron and Steel Group. Both companies, which ranked within the top 10 at the time, were based in the northeast Liaoning Province.