China and India will lead mergers and acquisitions (M&A) in metals and mining in 2011 after global deals rose 89 percent last year.

That's as rivalry for commodities among the fastest-growing economies spurs prices, said Ernst & Young LLP.

"The majors out of India and China will lead the deals," Michael Lynch-Bell, head of mining and metals at Ernst & Young, said in an interview in London. "The Indians are desperate. They are about 10 years behind China. They are really looking for coal and iron ore supply for the next 10 years."

Indian Prime Minister Manmohan Singh plans $1 trillion of spending to improve the nation's dilapidated road, rail and power networks that the government says carve 2 percentage points from economic expansion. Quarterly growth in China, the largest consumer of commodities from copper to zinc and iron ore, has outpaced India's economy for at least the past six years.

Indian companies were the seventh-most acquisitive in mining and metals last year, up from the 14th a year earlier, Ernst & Young said in a report published on Wednesday. The country, which recorded $4.6 billion of deals, for the first time surpassed China, with $4.5 billion, the consultant said.

"India and China are going head-to-head in every market for energy sources or metals or minerals or whatever because it is now the critical constraint," said Sunny Verghese, chief executive officer of Olam International Ltd, a Singapore-based supplier of more than 20 commodities.

Demand for steel in India may double in five years, while for non-ferrous metals such as copper and aluminum it may grow at twice the pace, according to Kunal Shah, head of commodity research with Nirmal Bang Securities Private Limited in Mumbai. The Indian economy will probably expand 8.6 percent in the year to March, the most in three years, the government's statistics office said on Feb 7.

In China, domestic producers plan to own more than half of the iron ore resources supplying the country's imports of the raw material, the Economic Information Daily said on Tuesday, citing a meeting of the China Iron and Steel Association.

"The steel companies all need iron ore and coal and they need thermal coal for their power stations," Lynch-Bell said.

Global mining mergers and acquisitions will also expand this year as gains in metals prices increased earnings and a greater willingness of banks to lend encourage deal-making, according to Ernst & Young.

"It wouldn't surprise me if this year's M&A value is 25 percent higher than last year's," said Lynch-Bell. "Large companies will continue to perform add-on acquisitions, worth between $1 billion and $3 billion" instead of bigger "transforming" deals. Smaller companies valued between $500 million and $1 billion may combine in equity-based mergers, he said.

The number of transactions worth more than $1 billion each rose to 23 with a total value of $58.4 billion in 2010, from 13 worth $23.4 billion a year earlier, according to the report.

The total of $113.7 billion in deals in 2010 was less than the $175 million the consultant had forecast as producers used cash "to reduce debt gearing to create a buffer against a potential global downturn" instead of buying assets, according to Lynch-Bell. Mining and metals companies raised a record $329.5 billion from equity-related issues, mostly to extend debt maturity, he said.

"Companies will be able to do deals as well as keeping that buffer in 2011, when there will be so much cash because the cash-generation will be fantastic," said Lynch-Bell.