Officials in Shandong Province announced personnel changes at two of China's largest steel makers that will pave the way for a merger, part of the larger rationalization of the steel industry. Analysts say the new entity will be the country's second-largest iron and steel group.

The companies -- Jinan Iron and Steel Group (short for Ji'gang) and Laiwu Steel Group (Lai'gang) -- which are the sixth and seventh largest steel makers in China, respectively, and both based in the eastern province, would be combined into the Shandong Iron and Steel Group Co., Ltd., State Assets Supervision and Administration sources in Shandong said on Tuesday.

The organization department of the Shandong Provincial Committee of the Communist Party of China said in an announcement on Sunday that Zou Zhongchen, former general manager of Shandong Metallurgical Industry Company, another provincial government-owned company, would be the chairman of the conglomerate's board committee. Ren Hao, former deputy general manager and general engineer of Lai'gang, would be the new group's general manager.

Wang Jun and Song Lanxiang, newly-appointed board chairs for Ji'gang and Lai'gang, respectively, would be board members of the new group.

Chen Bo, head of the supervision department of the administration, said that although a formal tie-up hadn't yet been publicly announced, the new officials would start work on the move after their appointments.

Announcement of the link-up, which became known almost two years ago, was delayed due to disagreements over personnel arrangements, Chen said. The consolidation didn't progress until the two former board chairmen, Li Changshun and Jiang Kaiwen, had retired.

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

The current production capacities of Ji'gang and Lai'gang, which have hovered at 12 million and 11 million tons, respectively, would be halved for energy-saving purposes. The combined entity would build a new, modern base in the coastal city of Rizhao, with an annual capacity of about 20 million tons and producing steel products that are technologically more sophisticated and with more added value, the plan said.

Analysts said the link-up of the companies, which specialize in manufacturing different types of steel products, would help improve the industry's structure and boost its efficiency and global competitiveness.

Xu Xiangchun, director of the Beijing-based Lange Iron and Steel Information Research Center, said the merger followed a national policy of restructuring and strengthening the steel industry.

"The regrouping will be a change to the current situation in which the steel makers are chaotic and atomized. It will help increase the levels of industrial concentration and improve the overall strength of the Chinese steel making industry," said Zhang Weiguo, director of the Economy Research Institute under the Shandong Academy of Social Sciences.

China is the world's largest steel producer and consumer. It produced about 490 million tons of crude steel in 2007, up 15.66 percent over 2006. It imported 383 million tons of iron ore last year, up 17.4 percent year-on-year, according to the China Iron and Steel Association.

The country has been upgrading its steel-making power by consolidating players with mergers and link-ups. 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.

(Xinhua News Agency February 27, 2008)