Two of China's 10 biggest steelmakers will be merged to create a behemoth with an annual output of 20 million tons - a move foreshadowing consolidation in the sector.

Anshan Iron & Steel Group (Ansteel) and Benxi Steel (Bensteel) will be combined to form Anben Steel Group Company, it was announced yesterday in Shenyang, capital of northeast China's Liaoning Province.

"The two companies are among the most important steelmakers in China and play a big role in the market. The merger would greatly improve their competitiveness and position in the international market," said Zhang Guobao, vice-minister of the National Development and Reform Commission (NDRC), the country's policy-making body.

Less than one month ago, the NDRC issued a steel industry development policy which encourages domestic steelmakers to form bigger entities each with annual output touching 30 million tons by 2010.

The formation of Anben Steel will be handled by a committee headed by Liu Jie, general manager of Ansteel, and Zhang Yingfu, board chairman of Bensteel.

Ansteel is the nation's second-largest steelmaker based in Anshan city. Last year, output reached 11.3 million tons and profits were 10.8 billion yuan (US$1.33 billion). Bensteel's output was around 7 million tons last year. The combined production capacity of the Anben group would be a match for industry-leader Baosteel, according to Liu Jie.

China's steel output last year was around 270 million tons, statistics from the China Iron & Steel Association (CISA) show. Total production touched 100 million tons in 1996 and the country has been the world's No 1 steelmaker for the past nine consecutive years.

However, production is mostly of crude steel and many high-end products are imported.

"The motivation behind the merger is the desire to improve the competitiveness of steel plants by blending good management with that of other plants and giving the resultant company a much better international standing," said Luo Bingsheng, vice-chairman of CISA.

There are at least two good reasons for the merger, the expert said - one is raw materials and the other is marketing.

Both Ansteel and Bensteel hold rich iron-ore reserves, which account for a quarter of the nation's total. The merger would help give them more bargaining power while purchasing raw materials and control costs.

The other one is marketing of rolling steel, a premium product. Their combined output is around 10 million tons, which is even higher than that of Baosteel, which would give them an advantage.

Moreover, the two companies could share technology, research and marketing channels, said Liu.

International steel giants have set up joint ventures or bought out Chinese steel companies in recent years.

The Netherlands-based Mittal Steel, the world's largest, bought about 37 percent of central China's Hunan Valin Iron & Steel Group Co in January; and is said to be in negotiations with south China's Kunming Steel.

Feng Guisheng, an economist at the Liaoning Academy of Social Science, suggested that Anben Steel may tie up with other State-run and private steelmakers in Liaoning Province to further improve its scale.

It is said that Liu Jie has a more aggressive plan to unite all eight big steel plants in northeastern China to former a gigantic steel group.

(China Daily August 17, 2005)