China's steel industry is expected to witness slower growth and more consolidation over the next few years, according to one of the nation's top statisticians.

The nation's macro control policy has resulted in a slowdown in fixed-assets investment in the sector, Liu Fujiang, a deputy director of the National Bureau of Statistics, told a conference yesterday.

But he said that "overcapacity still exists in the industry, especially in small plants that consume high amounts of energy and cause serious pollution."

In order to eliminate redundant production, the National Development and Reform Commission's plan to restructure the steel industry envisages a scaling back of iron and steel production by about 100 million tons over the next five years.

According to the plan, the first cuts will take place among 26 firms in North China's Hebei Province, which will reduce iron and steel production by 3.98 million tons and 3.73 million tons by the end of next year.

China had a total output of 346.1 million tons of crude steel in the first 10 months of this year, up 18.35 per cent year-on-year, according to statistics from the China Iron and Steel Association (CISA).

The nation's total crude steel output is expected to exceed 400 million tons this year, up from 353 million tons in 2005.

China exported 32.84 million tons of steel products in the first 10 months of this year, an increase of 80 per cent year-on-year, according to statistics from CISA.

Liu added that more mergers and acquisitions are expected in China's steel sector.

The Jinan and Laiwu steel corporations, the two biggest steel firms in eastern Shandong Province, agreed to merge this year, the largest such tie-up in China's steel industry.

Last August, two of the nation's top 10 Chinese steel manufacturers, Anshan Steel and Benxi Steel, both in Northeast China's Liaoning Province, teamed up to form Anben Steel Group, with an estimated annual production capacity of 20 million tons.

Overseas investors are also on the move. Last June, Mittal Steel Company, the world's largest steel maker, paid US$338 million for a 36.67 per cent stake in Hunan Valin Steel Tube & Wire Company Ltd.

Statistics show that China's 10 leading iron and steel plants will account for half of total national production by 2010 and, by 2020, three-quarters.

The industry's consolidation is causing more emphasis to be placed on achieving revenue and improving efficiency, said analysts, adding that consolidation is also taking place internationally.

Arcelor, the world's No 2 steel producer, decided this year to accept a 26.9 billion euros (US$33.7 billion) takeover bid from Mittal.

The purchase is expected to create an industry behemoth with an annual output of more than 100 million tons, controlling over 10 per cent of global steel production.

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