Baosteel Group Corp, will take an 80 percent stake in a new 35.9 billion yuan (US$5.2 billion) joint venture in southern Guangdong Province amid a steel industry restructuring.

Shanghai-based Baosteel will pay 28.7 billion yuan in cash for the stake in the new Guangdong Iron & Steel Group. Two local players, Shaoguan Iron & Steel Group and Guangzhou Iron & Steel Group, will take the remainder by contributing 7.2 billion yuan worth of existing assets to the venture, their listed units said in statements last night.

The country's top planner, the National Development and Reform Commission, in March said Baosteel would take over Shaoguan and Guangzhou Steel.

A major new steel plant in Zhanjiang, a port city in Guangdong, will be built.

GF Securities analyst Liu Baoyao said though Shaoguan and Guangzhou Steel may be affected in the short term, they could benefit in the long run given Baosteel's support in management, technology and iron ore procurement.

The NDRC has ordered 10 million tons of outdated annual steel making capacity be scraped in Guangdong in conjunction with the building of the new 10-million-ton Zhanjiang project, which will increase Baosteel's capacity by a third.

The project reportedly would cost more than 60 billion yuan.

China has been encouraging consolidation in its fragmented steel sector, the world's largest supplying a third of the global total, to make mills more competitive, and to cut pollution and bolster efficiency.

Earlier this month, Hebei Province announced a merger of its two main mills into a new group with an annual capacity of nearly 32 million tons.

Baosteel's listed unit, Baoshan Iron & Steel Co, and those of Shaoguan and Guangzhou Steel were suspended from trading yesterday pending the announcement.

(Shanghai Daily June 24, 2008)