Wuhan Steel, China's third largest steel mill, has signed a deal to build a steel plant that could cost up to US$6 billion in South China, but will have to vie for approval with Baosteel Group and South Korea's POSCO.

Wuhan Iron & Steel Group signed a memorandum of understanding with Guangxi Liuzhou Iron & Steel Group in May to build a 10 million ton green field steel plant in Guangxi Zhuang Autonomous Region, executives from both companies said Friday.

"Both companies will invest in the project. We are looking at a capacity of 10 million tons a year," said an official with Wuhan Steel's listed unit, Wuhan Steel Co. Ltd.

The project's investment amount and time frame had not been decided, he said.

However, a Liuzhou Steel official said costs could run between 20 billion yuan (US$2.42 billion) and 50 billion yuan, depending on the technology chosen.

There is currently a lack of a dominant steel producer in the country's southern area.

Domestic giant Baoshan Iron & Steel Co., Wuhan Steel and Angang New Steel Co. Ltd. Dominate the east, center and northeast, respectively.

Per capita steel consumption in South China was still well below that of other wealthy regions of the country, the Liuzhou Steel official said when asked if his company was concerned about competition from other planned projects. "We still have potential," he said.

Liuzhou Steel was now expanding its 4 million ton annual capacity to 10 million tons by the end of this year, the official said.

Wuhan Steel produced about 10 million tons of steel in 2004, and plans to increase that to 14 million tons in 2006, according to past company statements.

The government is pushing steel mills to modernize or consolidate to create internationally competitive steel companies out of an industry that dates from the planned industrialization of the 1950s.

In Hebei Province, six state-owned steel companies will merge into two steel companies, Tangshan Iron & Steel and Handan Iron & Steel, each with an annual capacity of over 10 million tons, the Securities Times said, citing sources in the provincial government.

(Shenzhen Daily June 6, 2005)