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Chinese plan for steel super firms seen floundering

Reuters reported that China is likely to fail in its drive for state owned steel giants to swallow small mills and create iron ore super buyers to wring better prices from leading sellers Vale, Rio Tinto and BHP Billiton as failure to get the three major iron ore suppliers to agree to price cuts in 2009 was blamed on small mills breaking ranks.

China latest five year plan aims to fix by bringing more than 60% of national steel capacity under the control of its top ten producers by 2015.

Cutting total steel capacity in China, variously estimated at 720 million to 750 million tonnes a year roughly more than 100 million tonnes over 2010 output of 626.6 million tonnes, by forcing mergers and shutdowns may not work as well as market forces.

China industry ministry last month said the top ten steel mills produced 48.1% of national output last year up by 3.6 percentage points from 2009 and close to its original target of 50%.

But analysts say that up to now, many of the consolidations have been cosmetic gestures to appease regulators.

Mr Henry Liu head of commodity research at Mirae Assets Securities in Hong Kong said "The government led administrative push will not work and the best way is to allow the market to play a major role in mergers and acquisitions"

Mr Du Hui with China Qilu Securities said "The majority of mergers and acquisitions have been sought to create a simple sum of output and haven't met the real target of regrouping assets and jointly utilizing resources."

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