A worker performs grinding operations at a Magang facility in Maanshan, Anhui province, on March 5. (PHOTO BY LUO JISHENG / FOR CHINA DAILY)

China's steel sector is likely to undergo a new round of mergers and acquisitions (M&A) in the next few years, which will contribute to the industry's carbon reduction, industry experts said.

Mergers and acquisitions will be encouraged so that new regional A-tier steel enterprises will be formed to better leverage market forces and improve the whole industry's development quality, said Qu Xiuli, vice-chairwoman of the China Iron and Steel Association

Qu Xiuli, vice-chairwoman of the China Iron and Steel Association (CISA), said China will accelerate the formation of an action plan for the steel industry to further reduce carbon emissions, and the country will also encourage more large-scale steel enterprises to initiate consolidation, so that a group of A-tier and regional steel giants will be formed to improve quality development of the industry.

M&As will be key for the industry to pursue high-quality and low-carbon development, and M&As will be encouraged so that new regional A-tier steel enterprises will be formed to better leverage market forces and improve the whole industry's development quality, Qu said.

"The steel industry should balance the regional layout of capacity to improve coordination with upstream and downstream industries, based on considerations not only for regional market demand but also environmental protection," said Luo Tiejun, vice-chairman of the CISA.

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Reining in the impetus to increase crude steel output, introducing tougher environmental protection requirements, overreliance on raw material imports and insufficiently small market shares held by big companies are the major challenges facing the industry over the next few years, he said.

The past few years have witnessed several influential M&As among Chinese steel companies.

In September 2020, Jingye Group Industry Co Ltd, a private steel producer in Hebei province, announced its acquisition of Guangdong Taidu Iron and Steel.

In June 2019, China Baowu Steel Group acquired a 51-percent stake in Magang Group Holding Co Ltd, which boosted Baowu's annual output capacity to more than 90 million metric tons.

As China's top steelmaker, China Baowu later surpassed Luxembourg-based ArcelorMittal to become the world's largest producer of crude steel in 2019, with crude output reaching 95.22 million tons.

READ MORE: Baowu Steel Group seeks to become global market leader

China Baowu said it plans to roll out a road map later this year for low-carbon steelmaking, and aims to peak carbon emissions by 2023 in response to the country's climate goals.