In a statement to the Shanghai Stock Exchange, Handan Steel said that Baosteel Group and its two affiliates, Shanghai Baosteel Engineering Technology and Shanghai Baosteel Industrial Testing, had bought a combined 138.2 million shares.

    This represents 5 per cent of the company's issued capital, bought for a total of 481 million yuan (US$60.12 million).

    Shares in Handan Steel, a steel producer in North China's Hebei Province, yesterday surged nearly 8 per cent to 4.85 yuan (60 US cents) apiece. Baosteel's shares gained 0.68 per cent to 4.47 yuan (56 US cents).

    Stockbrokers said the transaction was a curtain raiser to the rationalization of the industry, which is striving for greater cost efficiency.

    Such a rationalization has been made possible by recent stock market reforms that have turned non-tradable State shares into tradable ones.

    Liu Baoyang, an analyst at Guangzhou Development Securities Co, said Baosteel had been closely following Handan Steel's stock reform since earlier this year.

    He said Handan Steel shares are undervalued and there are many shareholders, so it was a good time for Baosteel to step in before foreign steel giants made a move.

    "It's very likely that Baosteel will eventually acquire Handan Steel," Liu told China Daily.

    Hebei has the highest steel output of all China's provinces and Handan Steel is the country's sixth-biggest listed steelmaker by market value.

    (Source: China Daily)