China’s second and sixth largest steelmakers by 2015 output announced on Sunday that they are in restructuring talks, which might lead to the creation of the country’s largest steel plant.

Shanghai-based Baoshan Iron & Steel Co Ltd (Baosteel) and Hubei-based Wuhan Iron & Steel Co Ltd (Wuhan Steel) said in separate announcements on Sunday that they would halt trading on the Shanghai bourse from Monday (June 27) as their state-run parents discuss “strategic restructuring” and would release a new development plan on the restructuring after five trading days. The companies did not specify what the restructuring would entail.

“The merger of Baosteel and Wuhan Steel fits with the government strategy of improving efficiency and reducing competition and overcapacity,” said Xu Xiangchun, chief analyst at consultancy Mysteel Research.

On the same day of the announcements, the chairman of the National Development and Reform Commission said that the nation will cut steel capacity by 45 million tons this year. China has pledged to reduce capacity by as much as 150 million tons through 2020.

After the announcements, Shanghai Reinforcement bar futures climbed as much as 6.4%, the most in six years.

In 2005, China’s industrial regulator said that it aimed to bring around 60% of total steel capacity under the control of its top 10 steelmakers by the end of last year. The target was missed by a long shot as production by all those producers only accounted for 34.2% of total production capacity.

The consolidations of state-owned enterprises have also been seen in other fields such as China Minmetals Corp’s takeover of equipment maker China Metallurgical Group Corp last year, and the merger of China Ocean Shipping (Group) Company and China Shipping Group into China Cosco Shipping Corporation in February.

 

Ma Guoqiang, current Chairman of Wuhan Steel, was former General Manager at Baosteel before transferring to Wuhan Steel in 2013.