WUHAN Iron & Steel Group, a central China-based major steel maker, has agreed with smaller Liuzhou Iron & Steel Group to set up a joint venture to build a steel plant with eventual annual capacity of 30 million tons.

    Wuhan Steel will pay cash for an 80 percent stake in the venture and the local government in Guangxi Zhuang Autonomous Region, the owner of Liuzhou Steel, will own the balance by contributing all Liuzhou's net assets, Liuzhou Steel's listed unit said in a Shanghai stock exchange filing.

    The venture, named Guangxi Iron & Steel Group, was launched on Wednesday.

    The project, to be located in Fangchenggang, a port city in Guangxi, is part of China's effort in consolidating its steel sector by building large, advanced mills along the coast while closing old and polluting ones.

    The project has won initial government approval on condition Guangxi and Wuhan Steel shut 9.1 million tons of obsolete capacity.

    "To build a project in Fangchenggang could significantly cut inland-based Wuhan Steel's sourcing costs for iron ore," said Bohai Securities analyst Ma Tao. "Meanwhile, the project could reach the southern market and the Southeast Asian markets, bang in line with the company's development strategy."The Fangchenggang project will have an initial annual capacity of 10 million tons after the first phase is completed. It will have a capacity of 30 million tons after the third phase, at a total cost of 205 billion yuan (US$30 billion), Xinhua news agency said. This compared to China's total steel capacity of about 550 million tons.

    Full operation is expected to start within five years.

    Liuzhou Iron & Steel Co, Liuzhou Steel Group's listed unit, rose 5.22 percent to 4.23 yuan and Wuhan Iron & Steel Co, that of Wuhan Steel Group, added 0.28 percent to 7.11 yuan yesterday.