Chinese second-biggest steel maker, Angang, has said it is close to merging with fifth-largest player Bengang, a deal that could create a sector leader in the world's biggest steel industry. A merger of Angang Iron and Steel (Group) and Benxi Iron and Steel Group (Bengang) was supported by both the central and Liaoning provincial governments, Angang President Liu Jie told reporters late on Monday on the sidelines of China's annual session of parliament.
Neither company, based in the north-eastern province of Liaoning, discloses financial data.
State media has reported that a merger could create a steel giant with annual capacity of some 30 million tonnes, surpassing the 20 million tonnes of industry leader Baosteel Group, which controls Shanghai-listed Baoshan Iron and Steel Co.
Now, the steel makers' bloated payrolls - Angang employs 110,000 workers while Bengang has 50,000 - posed a major obstacle, Liu said.
"Though it has to be done step by step, I believe the time is not far away," Liu said, without giving a timetable. "I think after these issues are resolved, our co-operation would be realised."
Beijing typically treads carefully when laying off employees, wary that rising unemployment could foment social unrest.
"This co-operation would increase our market share and utilise resources in a more efficient way ... and benefit the development of Angang and Bengang," Liu said.
If a merger goes through, it would set a precedent for consolidation in a domestic industry where smaller mills that enjoy local government backing have resisted Beijing's call to merge or shut.
Last year, Angang Group, parent of listed Angang New Steel, produced 11.33 million tonnes of steel for revenue of 50.2 billion yuan ($6.07 billion), Liu said.
A global iron ore price hike of 71.5 percent, due to take effect next month, would have less impact on Angang because it sources 90 percent of its raw material locally, he said.
Baosteel churned out 21.38 million tonnes of steel in 2004 for sales of more than 160 billion yuan, and is now the world's sixth-biggest steel producer.
China's steel capacity has more than doubled since 2000 to more than 300 million tonnes, raising fears among other steel producers of oversupply.
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