SHANGHAI, Mar. 19 -- China plans to phase out 11.29 million tonnes of steel production capacity, as well as 100 million tonnes of iron smelting capacity by the end of 2011, a senior ministry official said on Thursday.

China currently has a total annual steelmaking capacity of 720 million tonnes, and actual steel output hit 568 million tonnes in 2009, almost half of the world's total.

China cut outdated iron smelting capacity of 21.13 million tonnes and 16.91 million tonnes of steel capacity in 2009, Xin Guobin, a senior official from the Ministry of Industry and Information Technology told a news conference webcast.(www.miit.gov.cn)

"(Steel) capacity is still expanding blindly, as fixed asset investment in the steel and iron industry still grew 20 percent in 2009," Xin said.

He added that apparent consumption of crude steel in 2009 was 565 million tonnes, and the real consumption was barely 530 million tonnes after factoring in 30 million tonnes in stockpiles.

But the industry became slightly more consolidated from a year earlier, with the top 5 steel mills' output counting for 29.1 percent of the total output, compared with 28.6 percent in 2008, Xin said.

IRON ORE

China's massive steel industry has shown growing appetite for imported iron ore. Seventy percent of the ore consumed last year was sourced from overseas markets, up from 57 percent a year earlier, Xin also said.

Chinese steel mills have started talks with global miners such as BHP Billiton (BHP.AX: Quote), Rio Tinto (RIO.AX: Quote) and Vale (VALE5.SA: Quote) on term prices for 2010. The China Iron and Steel Association (CISA) said it strongly opposes the attempt by miners to increase benchmark iron ore prices by 80-90 percent.

"Any normal companies will find it difficult to cope if prices of raw materials for an industry that has been operating normally, continuously and for a long term suddenly are hiked by half or more," said Zhu Hongren, the ministry spokesman, when asked if a 90-percent hike in ore price would be reasonable.

"Negotiations between companies are dealt with by these companies. But if short-term interests were overly stressed, it could lead to lose-lose results."