China has issued a guideline to encourage major local steel enterprises to carry out mergers and acquisitions, boost industry concentration and raise endogenous power, in order to build world-class conglomerates.

In a guideline on promoting the high-quality development of the steel industry, the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Ministry of Ecology and Environment urged steel enterprises to carry out M&As across regions to reverse the "small, scattered and disorderly" situation in steel capacity.

"Responding to the call of the guideline, we expect to see several industry leaders to take action in the coming years," said Zhang Tieshan, assistant to the president and general manager of marketing department with csesteel.com, a Shanghai-based e-commerce and trading platform.

Zhang said he believes China Baowu Steel Group, and Anshan Iron & Steel (Ansteel) and Benxi Iron & Steel (Bensteel) are potential M&A candidates.

Similarly, Citic Pacific Special Steel Group Co Ltd, Tianjin Pipe Corp and companies with their respective special strengths may grow into industry leaders in their specialized area via M&A, he said.

The guideline also seeks to lead independent steel enterprises in Beijing, Tianjin, Hebei province and surrounding areas to take part in M&A activities or a recast of the industry.

China Baowu became the world's top steel producer in 2020 after producing 115 million tons of crude steel that year, which set a benchmark for other Chinese steel enterprises.

The behemoth was formed from the merger of Shanghai-based Baosteel Group and Wuhan Iron &Steel Group in Central China's Hubei province in December 2016.In 2019, it acquired Maanshan Iron and Steel Co Ltd (Magang), and in 2020, it took a controlling stake in Shanxi province-based stainless steel giant Taiyuan Iron & Steel (Group) Co, also known as Tisco.

Ansteel received Liaoning province's approval to acquire a 51 percent stake in Bensteel for free in August 2021. Ansteel will become China's second-largest steelmaker after China Baowu. This deal makes Ansteel the world's third-largest steelmaker after Baowu and ArcelorMittal, according to an S&P Global report.

The combined entity's crude steel output in 2020 is estimated to have reached about 55 million tons, and the group is expected to grow toward 80 million tons, Zhang said.

Wang Guoqing, director of the Lange Steel Information Center, said the new guideline has set practical and achievable goals.

"By recognizing existing challenges confronting the Chinese steel industry, including overcapacity, insufficient safety, less developed green and low-carbon standards, and relatively low industrial concentration, the guideline has set detailed targets and raised specific approaches for the sector's high-quality development," Wang said.

According to the guideline, 1.5 percent of the steel industry's revenue needs to be set aside for research and development, and the nation should operate more than 30 intelligent factories, and more than 15 percent of the crude steel output should be produced by electric arc furnaces.

"It is hoped that by 2025, China's steel industry will form a high-quality development pattern, which features reasonable layout, stable resources supply, advanced technology and equipment, prominent quality brands, strong global competitiveness, and green, low-carbon and sustainable high quality," the guideline noted.