China’s largest stainless steelmaker, Taiyuan Iron & Steel Group, plans to buy Zhongyu Iron & Steel Group of Shanxi province.

Taiyuan hopes to finalise details of the acquisition by early September, reports the China Daily newspaper.

The deal will be the first acquisition by Taiyuan Steel. The state-owned mill wants to take the lead in acquiring some of Shanxi province’s 45Mt/y of capacity.

“We are talking with Zhongyu about the merger, but (the details) have yet to be settled,” said Guo Juncai, vice-director of the Development and Planning Department of Taiyuan Steel..

Shanxi province has more than 200 steel mills. There are only five steel mills with a capacity over 2Mt, and 13 steelmakers with 1Mt of capacity.

The central government is encouraging big mills to merge with rivals to create more cohesive steel groups.

The nation's top 10 steelmakers are expected to account for more than 60 percent of the country's total steel capacity by 2015. The government will withhold approval for any new projects aiming to expand capacity by 2011, forcing steel mills to consolidate.