China encourages mergers of steel producers

China will encourage mergers in the iron and steel industry, said Minister of Industry and Information Technology Li Yizhong on Friday, as another move to offset the adverse impact of the global financial turmoil.

Li told reporters that "the industry was one of the hardest-hit sectors amid the deepening financial turmoil" and the government will encourage large domestic steel producers to buy smaller ones.

The government has been urging the industry to rationalize for some time, but there are still nearly 1,000 iron and steel producers, most of which are small.

The industry is also operating below capacity. This year, steel output will be 480 million to 490 million tonnes, against total capacity of 600 million tonnes, Li estimated.

The government will extend financing on favorable terms to help the steel industry upgrade its technology, said Li.

China's steel sector has experienced tough times amid the international financial and economic crisis. Steel prices have slumped by nearly half in recent months and there are no signs of recovery.

Li also said that China should have a say in iron ore pricing, adding that Chinese steel makers should work together to avoid pushing up iron ore prices in international negotiations.