Two workers stand on tonnes of steel at a factory in Shanghai. Japan's Nippon Steel Corp has said it is considering a possible tie-up with China's largest steelmaker Baosteel Group Corp amid growing competition and consolidation in the industry. [AFP]

TOKYO - Japan's Nippon Steel Corp. has said it is considering a possible tie-up with China's largest steelmaker Baosteel Group Corp. amid growing competition and consolidation in the industry.

Japan's largest steelmaker has increasingly focused on high-end products as Baosteel and other Chinese companies ramp up production of general-use steel.

Baosteel chairwoman Xie Qihua was quoted last week as saying she would ask both Nippon Steel and South Korea's POSCO to buy shares in the Chinese giant.

"We had an approach from Baosteel," Nippon Steel spokesman Masato Suzuki confirmed. "We first have to study if there is any project that would benefit us."

Suzuki declined to offer details or say if Japan's largest steelmaker would consider a cross-share holding with the Chinese company.

Nippon Steel became the world's second largest steelmaker following Mittal Steel's hard-fought merger with Arcelor this year.

Nippon Steel already has a capital and operating alliance with South Korea's POSCO, while Baosteel, Nippon Steel and Arcelor in 2003 jointly launched a high-grade steel factory in Shanghai.

While the three East Asian companies are only talking of tie-ups, their combined output is around 90 million tons, just below Arcelor-Mittal's 110 million tons.

A cross-share holding could offer Nippon Steel a "poison pill" defense to prevent a hostile takeover bid.

Baosteel is state-owned and its chairwoman said she has turned down a proposal for more cooperation made personally by Mittal's founder Lakshmi Mittal, who built his empire through aggressive buyouts.

A tie-up with Baosteel could also benefit Nippon Steel as it is under pricing pressure from the huge steel output from China as the country's economy grows at a breakneck pace.

Nippon Steel has tried to compete by shifting focus to high-end products such as steel sheet used to make cars.

"The company will invest in the area (of high-grade products) to meet more demands," Suzuki said.

The company's total output of crude steel was 33.95 million tons in the year to March 2006, of which 70 percent was accounted for middle and high-end steel, he said.