A worker in a steel plant in Lianyungang, Jiangsu province. PROVIDED TO CHINA DAILY

China is considering a sweeping overhaul of its steel industry that would consolidate major steel producers into two giants, with one located in the north and the other in the south, according to people familiar with the plan.

Shanghai Baosteel Group Corp and Wuhan Iron & Steel Group Corp will be merged into Southern China Steel Group, while Shougang Group and Hebei Iron & Steel Group will combine into Northern China Steel Group, said the people, who declined to be identified because the information is confidential. The combinations will give Chinese steel mills the scale to rival global giants such as ArcelorMittal SA.

The State-owned Assets Supervision and Administration didn't respond to a request for comment, while a Baosteel Group spokesman declined to comment when reached by Bloomberg.

The mergers would enhance government efforts to reduce capacity in the world's biggest producer as part of its drive to overhaul an inefficient sector and bolster an economy growing at its slowest in decades. China's crude steel-producing capacity reached a record of 1.2 billion tons at the end of 2015, according to the China Iron & Steel Association.

The plan "will help accelerate eliminating excess steel capacities as the companies will remove duplicated products," Helen Lau, an analyst at Argonaut Securities Asia Ltd, said from Hong Kong.

Bloomberg