China's top mill, Baosteel Group Corp, is set to announce a much-awaited deal next week to acquire Xinjiang Bayi Iron & Steel Co, sources said yesterday.

Shanghai-based Baosteel will inject three billion yuan (US$375 million) into Bayi, the dominant steel maker in northwestern Xinjiang Uygur Autonomous Region, becoming its controlling shareholder.

"They plan to sign the deal on Tuesday or Wednesday," a source said. No more financial details such as the exact stake Baosteel will acquire were immediately available.

Completion of the long anticipated deal is seen as a major step forward for Baosteel as it moves towards more domestic mergers and acquisitions after the global mega marriage of Arcelor SA and Mittal Steel Co.

Baosteel formed a strategic alliance with Bayi's state-owned parent in March, which was thought to help pave the way for the eventual merger. Baosteel has also set up alliances with other domestic mills including Anhui Province-based Magang (Group) Holding Co.

The industry has been optimistic of the Bayi deal, which can give Baosteel access to rich ore resources and low production costs, as well as potential markets in neighboring central Asia nations.

China is encouraging an industry consolidation to strengthen the fragmented steel sector. The government's industry policy doesn't allow foreign firms to take a majority in domestic mills.

Chinese mills have to accelerate their pace of consolidation in case the government eases the current ownership rule, analysts have said.

Getting big could help mills in China to compete on a global level and fend off possible hostile takeover bids in the future. It could also strengthen Chinese steel makers' bargaining power in negotiations for raw materials such as iron ore.

Chinese mills will be able to buy firms globally after domestic consolidation takes place, said Nicholas J. Sowar, a senior steel consultant at Deloitte & Touche, in an earlier interview.

Editor: Yan