China will soon OK new Wuhan Steel mill -sources

SHANGHAI, March 4 (Reuters) - Beijing will soon approve Wuhan Iron and Steel Group's plan to build a 10 million-tonne steel mill in the southern city of Fangchenggang, opening the door for it to buy into smaller rival Liuzhou Iron and Steel (Liugang), company and government sources said on Tuesday.

Wuhan Iron and Steel Group, China's No. 4 steelmaker, has already begun preparations for infrastructure construction at the site, on the Guangxi coast, the sources in Wuhan Steel and the Guangxi government said.

"If it gets approval, the project will lead to consolidation between Wuhan Iron and Steel Group and Liuzhou Iron and Steel Group," said Liao Zhigang, chairman of Liugang's listed unit Liuzhou Iron and Steel Co Ltd (601003.SS).

In late 2005, Wuhan Iron and Steel Group, the parent of Wuhan Steel (600005.SS), announced that it would buy into Liugang and that the two would jointly build a 10 million-tonne steel mill as part of Beijing's plan to build large, state-of-the-art mills along the coast.

But Beijing has been silent on the project, as well as on a plan by Baosteel (600019.SS) to build a mill of similar size on the nearby coast of Guangdong Province.

The drive is part of China's plan to develop the coast of the Gulf of Tonkin and boost trade ties with Southeast Asia, the sources said on Tuesday. (Reporting by Alfred Cang; Editing by Lucy Hornby and Edmund Klamann)