Steel giant

China's second and fifth largest steel mills are planning an ambitious merger that would form a global giant. Anshan Iron & Steel Group and Benxi Iron & Steel Group will merge to form Anshan-Benxi Steel Group. Both mills are owned by the government.

The merger, which comes amid a major government-directed overhaul of the industry, could surpass the 20 million tonnes of production pumped out annually by China's current market leader, Shanghai-based Baosteel.

The new group could target other local private steel firms to allow its steel output to reach 51 million tonnes by 2010 and become one of the world's top three steel producers. Mittal of the Netherlands and Arcelor, a European consortium, are currently the world's largest.

The move follows the unveiling of Beijing's long-term policies for the development of the domestic steel sector last month, which have effectively decreed the consolidation of the sector's super-fragmented state. To strengthen the industry, Beijing is planning to merge many of the sector's 871 steel producers, less than two per cent of whom are capable of annual production above five million tonnes. The new portfolio also calls for China's 10 largest steelmakers' combined output to be boosted to over 50% of the country's total by 2010, and over 70% by 2020.

China's steel output reached 272.8 million tonnes in 2004 and is expected to rise to 332 million this year.