By Gong Zhengzheng (China Daily)
Updated: 2007-08-15 06:59

Production of small steelmakers is growing much faster than that of the entire sector due to robust demand and bullish prices at home and abroad.

First-half combined production of steel mills with an annual production capacity of less than 1 million tons jumped 36.8 percent year-on-year, according to data from China Iron & Steel Association.

At the same time, total crude steel production in China, the world's top steel producer since 1996, rose by 18.9 percent to 237.6 million tons.

In the first five months of this year, the sector posted 94.2 billion yuan in profits, rocketing 116.7 percent year-on-year.

Luo Bingsheng, vice-chairman of the steel association in Beijing, said the central government should take measures to "balance the interests of different local authorities" to facilitate trans-regional M&As in the steel sector.

"Central and local authorities should also help steel companies settle redundant workers and unload non-core businesses with M&As," Luo said.

China badly needs "world-class steel giants" as the world's two top steelmakers have consolidated into a new giant group, Arcelor Mittal, churning out 120 million tons a year. In contrast, Baosteel, China's No 1, produced 22.53 million tons last year.

Foreign giants are also eyeing M&As in China to expand in the world's biggest steel market, making M&As between domestic steel mills much more imperative.

Arcelor Mittal, which already owns 29.5 percent of Valin's Shenzhen-listed unit, Hunan Valin Steel Tube & Wire Co, is awaiting the Chinese regulator's nod to buy a stake of Laiwu Steel Corp in East China's Shandong Province.

According to a government policy for the sector announced in 2005, China plans to form two over-30-million-ton steel groups by 2010 through M&As.

The government also expects the top 10 steelmakers to control more than half of the nation's steel production by 2010 and over 70 percent by 2020.

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