IMPORTER'S WOE: The excessive dependence on iron ore imports has become a handicap stifling the country's steel industry. In the picture imported iron ore is unloaded at Guangxi Fangchenggang Port, south China

China's steelmakers are gearing up for a massive reshuffle as some of the biggest players in the country unite in an attempt to boost the highly fragmented industry.

Hebei Province-based Tangshan Iron and Steel Group Co. Ltd. (Tangsteel) and Handan Iron and Steel Group Co. Ltd. (Hansteel) recently merged in a move to stimulate the province's steel industry. The terms of the deal were not disclosed.

The merged entity, Hebei Iron and Steel Group (HISG), inaugurated on June 30, will have a combined annual steel output of 31.75 million tons based on 2007 figures, displacing Shanghai-based Baosteel as China's No.1 steelmaker by productivity.

In a bind

According to data from the International Iron and Steel Institute, China topped the world in terms of its crude steel output in 2007, which stood at 480 million tons. This amount was more than the combined outputs of Japan, the United States, Russia, India, South Korea, Germany and Ukraine.

Despite Chinese steelmakers' high output, the companies are being pinched by resource depletion and an inability to meet environmental pollution-reduction standards.

Data from the China Iron and Steel Association indicate that imports supplied 54.84 percent of the country's iron ore in the first quarter of 2008, an amount that was 3.74 percent higher than in all of 2007. Iron ore prices in international markets are creeping upwards annually, leaving domestic steel mills on edge.

China's steel industry also suffers from irrational organizational structures and a lack of competitive advantages rooted in obsolete technologies, said Luo Bingsheng, General Secretary with China Iron and Steel Association in an article in Shanghai Securities News.

By the end of 2006, the country had 7,000 steelmakers, mostly small and medium-sized ones, Luo said. Baosteel, the country's largest steelmaker, is the world's fifth largest producer with a crude steel output of 28.58 million tons in 2007. By contrast ArcelorMittal, the world's largest steelmaker, produced 116.4 million tons last year.