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Chinese steel mills announce merger

China's second- and fifth-largest steel mills yesterday announced an ambitious merger that would form a global giant and make it one of the world's top players.

Anshan Iron and Steel Group Co (鞍山鋼鐵) and Benxi Iron and Steel Group (本溪鋼鐵) will merge to form Anshan-Benxi Steel Group, the companies advised the Shenzhen Stock Exchange.

The statements called the consolidation merely "a cooperation between the two groups," where "no stake issues are involved between the two companies."

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, analysts said.

Mittal of the Netherlands and Arcelor, a European consortium, are currently the world's largest.

The statement said the new group would have a joint board of directors, annual investment planning, marketing at home and abroad, resource allocation, and research and development.

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 2 percent of whom are capable of annual production above 5 million tonnes.

The new portfolio also calls for China's 10 largest steelmakers' combined output to be boosted to over 50 percent of the country's total by 2010, and over 70 percent by 2020.

As the world's largest producer of crude steel, China has spent billions of dollars on upgrading its steel makers so they can compete with global rivals.

Last month the government implemented a plan that has restricted investment in its steel industry by barring foreign companies from taking controlling stakes, much to the dismay of other steelmakers keen for a slice of the action.

China's steel output reached 272.8 million tonnes last year and is expected to rise to 332 million this year, earlier state press reports said.
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