Aug. 14, 2009 (China Knowledge) - China's Ministry of Industry and Information Technology is currently drafting a guide to mergers and acquisitions in the iron and steel industry, and to curb overcapacity will disallow expansion projects in the steel industry for the next three years.

Annual production capacity is currently 660 million tons, while demand is only 470 million tons, indicating a surplus of 190 million tons, said Li Yizhong, minister of MIIT. Furthermore, projects that will add 58 million tons of capacity are under construction.

Li believes that one of the solutions is to eliminate outdated facilities. Doing so would cut annual production of iron by 100 million tons and annual production of steel by 50 million tons.

China's iron and steel industry should accelerate mergers and acquisitions, Li said. Steel mills in Hebei Province will cut their annual overall capacity to 80 million tons from 120 million tons over the next two to three years.

Li also said that the sharply increasing prices of iron ore lead to big losses of Chinese steel enterprises, and China hope the world's major iron ore suppliers will consider long-term cooperation with China's steel industry and handle the price negotiation fairly.