Baosteel Group, China's largest steel producer, on Saturday opens a 35.86 billion yuan (5.2 billion U.S. dollars) joint venture with smaller rivals in the southern province of Guangdong.

The new steel mill merged Guangzhou Iron and Steel Enterprises and Shaoguan Iron and Steel Group.

Baosteel paid 28.69 billion yuan (4.2 billion U.S. dollars) for a 80 percent stake in the newly-formed Guangdong Iron and Steel Group. The two local rivals has a 20 percent stake.

Xu Lejiang, Baosteel's chairman, said the industry restructuring were starting to yield results.

Chinese government has been encouraging consolidation of the domestic steel sector amid efforts to adjust industry structure and eliminate out-dated production facilities.

Xu said the local steel industry had entered a critical period for growth. It must change growth mode, as the rising costs in iron ore and coal and penetration of overseas rivals squeezed the corporate profits, he said.

Baosteel, who negotiated on behalf of the country's steel sector, said late Monday it has agreed a price hike of up to 96.5 percent for iron ore imports from Australian mining group Rio Tinto.

Baosteel has set a target of expanding annual production capacity to 80 million tons by 2012. It also eyed annual sales revenue of 50 billion U.S. dollars and profits of five billion U.S. dollars.

Company sources said the steel giant would continue to seek more mergers and acquisitions and boost competitive edge for high value-added steel products.

In January 2007, Baosteel paid three billion yuan (437 million U.S. dollars) for a 69.61 percent stake at Bayi Iron and Steel Group, the largest in northwest China's Xinjiang Uygur Autonomous Region.

Last December, it launched a 19.4 billion yuan (2.8 billion U.S. dollars) joint venture with Hansteel Group in Handan, a city in the northern province of Hebei.

(Xinhua News Agency June 29, 2008)