Hebei Iron & Steel Group, China's biggest steelmaker, is planning more mergers and acquisitions in China and abroad as part of a government drive to improve the country's mills.

"We want to make further progress on mergers and acquisitions," Chairman Wang Yifang said at a press conference in Beijing today, without identifying targets. The state-owned company is in talks to buy Shijiazhuang Iron & Steel Co., Wang said March 7.

The Chinese government wants to accelerate consolidation in the steel industry to tackle overcapacity and curb pollution as output soared to a record last year. The overcapacity is depressing prices and hurting profitability, the China Iron & Steel Association said.

"In Hebei, two-thirds of the production comes from privately owned mills," Wang said. "In times of favorable market conditions, they are unwilling to be merged." Hebei Steel is in contact with producers outside of its province for possible deals, he said.

The Chinese government is planning to close blast furnaces with capacity below 300 cubic meters by the end of 2010 and furnaces with capacity less than 400 cubic meters next year, Wang said.

Second Biggest

Hebei Steel was formed in June 2008 from the combination of Tangshan Iron & Steel Group and Handan Iron & Steel Group, both of which are based in the northeastern Hebei province.

The steelmaker produced 40.2 million tons of crude steel last year, ranking it as the world's second-biggest producer after ArcelorMittal, which made 73.2 million tons, according to the American Institute for International Steel.

Talks to settle contract iron ore prices with Rio Tinto Group, BHP Billiton Ltd. and Vale SA, the world's three largest suppliers, are continuing, Wang said. He confirmed some contracts were priced from Jan. 1, instead of the traditional April 1 start date, without giving details.

Chinese steelmakers have signed provisional pricing contracts with BHP that started from Jan. 1, Maanshan Iron & Steel Group Chairman Gu Jianguo said March 8. Melbourne-based BHP wants to implement pricing based on cash and quarterly levels, as prices on the spot market are more than double last year's annual benchmark.

Vale is seeking to raise contract iron-ore prices by more than 90 percent for the second quarter of 2010 in negotiations with Japanese steelmakers, Nikkei English News reported, without saying where it obtained the information.