SHANGHAI, Jan. 15 -- China's biggest steel firm, Baoshan Iron & Steel Co (600019.SS: Quote), is in talks on a possible partnership with Jiangsu Shagang Group, the country's biggest private steel maker, a domestic newspaper reported on Thursday.
Baosteel and Shagang have been in talks to explore opportunities for cooperation since late 2009, the China Business News quoted unnamed senior executives at Shagang as saying.
They are looking at options including asset restructuring, a joint venture and an equity tie-up, the newspaper said.
Baosteel chairman Xu Lejiang said in mid-December that the company would consider mergers and acquisitions in the industry and would look for opportunities to invest abroad. [ID:nBJD003340]
Baosteel was the world's third-largest steel producer as of 2008, churning out 35.4 million metric tonnes, while Shagang took ninth spot at 23.3 million tonnes, according to the World Steel Association.
The planned deal is one of a number of industry "restructuring" plans currently being encouraged by the central government.
Beijing has been working to consolidate the country's fragmented steel sector for several years, largely to improve its regulatory reach in the industry as well as bolster China's bargaining position for iron ore supplies from top miners BHP Billiton (BHP.AX: Quote) (BLT.L: Quote), Rio Tinto (RIO.AX: Quote) (RIO.L: Quote) and Brazil's Vale (VALE5.SA: Quote)RIO.N.
The China Iron and Steel Association has said that China's position in the talks has been weakened because local steel mills -- especially smaller operators -- have failed to form a "united front" against the miners.
However, the consolidation process has so far been slow, with provincial governments reluctant to accept plans that would reduce local capacity and eat into tax revenues.