India has reacted cautiously to the proposed consolidation of steel industry in China. It, however, sees it as inevitable, given the benefits from economies of scale and China’s excessive dependence on iron ore imports.

It was reacting to a reported move by China to set up 1-2 steel producers the size of global leader ArcelorMittal in scope and size to win better prices from customers and material suppliers. China, which is the world's largest producer of steel, will push for mergers and acquisitions among the nation's 800 odd steel mills. “It is quite likely that they may do it, after all they have achieved it in oil and fertilisers,'' union steel secretary Atul Chaturvedi said.

Chaturvedi said that China too would have to watch their economies of scale. “They do not have large mining reserves and most of its companies are dependent upon imports,'' Chaturvedi said. Moreover, the line that distinguishes public and private ownership in China is rather thin and not clearly delineated, he said.

Bloomberg had reported last week quoting Chinese officials as saying that the fragmented steel industry has led to overcapacity, depressing metal prices and reducing the ability of Baosteel Group Corp and others to obtain cheaper materials. The nation accounted for half of global imports of iron ore in 2008 and failed this year to win a price cut agreement from BHP Billiton and Rio Tinto Group.

Baosteel, China’s biggest steelmaker, produced 35.44 million tonnes, followed by Hebei Iron & Steel Group with 33.3 million tonnes. China's steel output in 2008 was 500.5 million tonnes.

According to the Chinese plan, the government will allocate iron ore, coal and other resources to companies involved in the consolidation under the policy. It will also encourage and support steelmakers to invest in overseas iron ore and coal mines.

Steel Authority of India (SAIL) was rather conservative in its reaction. “Consolidation in the steel industry is always welcome. What China has announced amounts to consolidation of their steel industry. If they do so, it will be good,'' SAIL chairman S K Roongta, said.