The northern province of Hebei announced Wednesday the establishment of a big steel conglomerate -- Hebei Iron and Steel Group Co -- a combination of two local steel producers.

It would be officially inaugurated before mid-July, said Sun Ruibin, vice governor of Hebei Province.

As a substantial step in Hebei's aggressive plan to reshuffle its fragmented steel sector, the province approved the merger of Tangshan Iron and Steel Corp and Handan Iron and Steel Corp after more than five months of debate among government officials.

Deemed helpful to give the province more clout in the country's booming steel industry, the merger eliminated the possibility that Tangshan in the north would be acquired by the Shougang Group and Handan in the south taken over by the Baosteel Group.

"It would be a big loss to Hebei's steel industry if the two firms were acquired by companies outside the province," said a local industry analyst.

Most steel makers in Hebei were small. The biggest, Tangshan Iron and Steel Corp, produced 22.75 million tonnes last year while the smaller Handan Iron and Steel Corp turned out only 9 million tonnes.

"The reforms of individual steel firms in Hebei may be successful but the reshuffle within the sector was dwarfed by breakthroughs made by other provinces," said Xu Xiangchun, an industry analyst based in Beijing.

Earlier this year, two steel firms in eastern Shandong province, Jinan Iron and Steel Group and Laiwu Steel Group -- were combined into the Shandong Iron and Steel Group Co Ltd.

Under the Shandong provincial steel industry plan, the new group would have an annual output of 31.6 million tonnes.

"Hebei's leaders must have been stimulated by the move, so they became firm about the merger," he said.

An organizing group of Hebei Iron and Steel Group Co has been founded to coordinate efforts of both companies. Wang Yifang, general manager of Tangshan Iron and Steel Corp, was appointed director of the group and Liu Rujun, board chairman of Handan Iron and Steel Corp, vice director.

China is the world's largest steel producer and consumer, and it has been upgrading its steel-making power by consolidating companies 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.