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

Mergers and acquisitions (M&As) in China's huge but fragmented steel sector are increasing this year, with big producers taking over the smaller ones.

The latest to hop on to the consolidation bandwagon is Hunan Valin Iron & Steel Group, the country's tenth-biggest steel mill by 2006 production, which last week decided to buy a 55 percent stake in Jiangsu Xigang Group, the No 69, for 400 million yuan.

Before that, Wuhan Iron & Steel Corp, the country's fifth-biggest steel mill by 2006 production, this month decided to take over Kunming Iron & Steel Co Ltd, ranked 23.

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Zhang Xiaogang, president of the No 3 steelmaker Anshan Iron & Steel Corp, said recently it will ink an asset deal with the No 12, Benxi Iron & Steel Corp, later this year to form China's new steel champion, beating Baoshan Iron & Steel Corp (Baosteel).

Both Anshan and Benxi are located in Liaoning Province in the Northeast.

Cheng Weiqing, an analyst with CITIC Securities Co in Beijing, said the new pace of restructuring will help increase the steel sector's concentration ratio.

Cheng predicted China's top 10 steel mills will control 36 percent of total crude steel production in the country this year, up from 33 percent in 2006.

However, Zheng Dong, from Guosen Securities Co in Beijing, said the current pace of M&As or consolidations, mainly pushed by the government, is not fast enough for China's steel sector, where there are around 800-odd steel mills with the majority being too small to contest globally.

"Massive market-driven M&As are expected two to three years later as steelmakers will have to consolidate to survive mounting competition and gain more power in talks with raw material providers," Zheng said. "Many small steelmakers are unwilling to be bought out by big ones as they enjoy bumper profits thanks to strong market demand and prices."

Xu Zhongbo, CEO of Beijing Metal Consulting Co, agrees: "Who wants to be at the mercy of others if it's doing fine by itself? This is the biggest obstacle to M&As in this sector."

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