The Guangdong provincial government is expected to kick-start the consolidation of the steel sector after the Lunar New Year, He Wenbo, general manager of Baosteel, told Guangzhou-based newspaper Xinkuaibao.

Zhang Chi, public relations manager of Baosteel, said consolidation-related work is underway.

Baosteel's integration of Guangdong steel enterprises dates back to the Zhanjiang project, a steel production base with a planned annual capacity of 10 million tons incubated by Baosteel several years ago.

The National Development and Reform Commission had given preliminarily approval in March 2008 to Baosteel to construct the Zhanjiang project in Guangdong, by integrating Guanggang and Shaogang.

Baosteel will take over Guanggang and Shaogang and launch a new company in Guangzhou, called Guangdong Iron and Steel Group Corp.

Guanggang will close its steelmaking facilities in Guangzhou, while Shaogang will shut or update its facilities, the Guangdong government said.

Baosteel will pay $4.2 billion in cash for 80 percent stake in the newly established company, while the Guangdong State-owned assets regulator, which owns the assets of Guanggang and Shaogang, will hold the balance 20 percent.

The company will, however, have to take bold steps to close outdated facilities before it can win regulatory approval to start the new mill in Zhanjiang.

"The long-delayed acquisition gathered steam last year when demand started to pick up," said Yu Liangui, a senior analyst with consulting firm Mysteel.

Baosteel's takeover of Bayi Iron and Steel Group, the biggest steelmaker in Northwestern China's Xinjiang Uygur autonomous region, and steel enterprises in Guangdong will strengthen its dominant position in the industry, he said.

High value-added steel products like automobile steel sheets have a large market in Guangdong province.

Under Baosteel's stewardship, steel companies in Guangdong will have better access to advanced technology and capital to develop these high-value added steel products for the auto sector, he said.

As part of the consolidation moves many large steel mills are shifting from inland locations to coastal areas.

Most of the restructured steel industry will now be focused on China's coast - with Anshan Steel in Liaoning province, Shougang in Caofeidian in Hebei province, Baosteel in Zhanjiang, Guangdong province, and Wuhan Iron and Steel Group in Fangchenggang, the Guangxi Zhuang autonomous region.