Industry leaders who have attended the fourth China International Steel Congress in Beijing early this week predict that a wave of merges and acquisitions is set to sweep China's steel industry.

"China's steel industry will see large-scale restructuring in line with changing international environment and intensified competition," said Xu Lejiang, general manager of Shanghai Baosteel Group Corp.

Wang Tianyi, president of Tangshan Iron and Steel Group Co., Ltd., said mergers and acquisitions are inevitable for the development of China's steel industry.

China's economic authorities have confirmed that the central government will restructure the over-producing industry by limiting production capacity and encouraging domestic steel companies to merge in order to compete on the world market.

Jia Yinsong, deputy director of the bureau of economic operation under the National Development and Reform Commission (NDRC), said policies would be published soon.

The China Iron and Steel Association (CISA) predicts the industry is forming around four focuses: Anben Steel Group, a merger of Ansteel and Benxi Steel, in northeast China; a combined Shougang Group and Tangshan Iron and Steel Group in the north; Shanghai Baosteel in east and southeast China; and Wuhan Iron and Steel Group in central and southwest China.

Xie Qihua, CISA chairman, said both overseas and domestic private investors are welcome in the industry restructuring.

Mittal Steel Co., the world's biggest steel maker, made a crucial move in the Chinese market in January, buying 37 percent of stake in Hualing, a steel pipe maker in Hunan Province.

Stimulated by fast economic growth, China's crude steel consumption accounted for 32 percent of world total in 2005.

China's annual crude steel production capacity is 420 million tons, and it produced 352 million tons in 2005, exceeding the combined production of the Unites States, Japan, the Republic of Korea and Russia.

But Xie noted that China's industry still lacks concentrated production facilities, and is hampered by poor industrial structures, a lack of technical innovation and a preponderance of low-production companies.

Last year China's top ten steel producers produced only 36.89 percent of national total, he said. Only eight Chinese companies had an annual production exceeding 10 million tons.

Xie said China still needs to import high-end products like cool-rolled silicon steel sheet and steel plate for saloon cars.

By the end of last year, China's output had surpassed demand by 4.75 percent.

With no past support for its large steel companies, the rapid expansion of the industry in the past five years has spawned many medium and small plants.

Karl-Ulrich Kohler, president of German steel giant Thyssen Krupp, said that compared with European producers, China's steel industry was too fragmented.

Wu Xichun, consultant to the CISA, said restructuring would strengthen China's steel industry, and he urged the government to issue its policies as soon as possible.

Under the NDRC's development policy, the country's top ten producers are expected to produce half of China's steel by 2010, and 70 percent by 2020.

Source: Xinhua