Steelmakers plan to form new company

TWO leading Chinese steelmakers plan to form a new company that could become the second-biggest domestic mill by output, in the latest example of consolidation in the fragmented steel industry.

Jinan Iron & Steel Group and Laiwu Iron & Steel Group, both in Shandong Province, have agreed to pool assets to create Shandong Iron & Steel Group, Jinan's listed unit said in a filing yesterday.

The restructuring would see both companies become shareholders in the new company while continue to operate independently, the stock exchange filing said. It did not give the two firms' stakes in the new company.

Based on the duo's operation in 2005, the new Shandong group will have a combined steel output of 20.7 million tons, putting it behind only Shanghai-based Baosteel Group Corp, which produced close to 23 million tons last year.

It's not immediately clear whether the deal would have implications to Arcelor SA, which has agreed to buy a 38.41 percent stake in Laiwu Steel's listed vehicle, making it one of the two biggest shareholders in the company. Arcelor's purchase is pending central government approval. An official at Shandong's state asset supervision agency declined to comment.

The steel industry worldwide is under pressure for a new round of mergers and acquisitions after the marriage of the world's two largest mills - Mittal Steel Co and Arcelor.