A merger between the two steel giants, Shanghai Baosteel Group Corporation and Wuhan Iron & Steel Group Corporation, who rank fifth and 11th respectively in the world, would create the nation’s biggest mill and one that would rival the scale of ArcelorMittal SA.

Trading was suspended in the listed units of the companies, as their parents discussed “strategic restructuring”, reported Bloomberg. The two companies had a combined market value of US$16.3 billion, and a capacity of more than 70 million metric tonnes.

“The merger of Baosteel and Wuhan Steel fits with the government strategy of improving efficiency and reducing competition and overcapacity,” Xu Xiangchun, chief analyst at consultancy Mysteel Research told Bloomberg. “With these two leading the effort, there might be more mergers ahead.”

This had come at a time when the chairman of China’s top economic planner, the National Development and Reform Commission, said the nation will cut steel capacity by 45 million tonnes this year. It has already pledged to reduce capacity by 150 million tonnes through 2020.

Chief analyst for Shanghai Steelhome Information Technology, Wu Wenzhang said however that any merger is unlikely to have much impact on China’s exports. “Exports are a matter of global trade, overseas demand, and Chinese products’ competitiveness, which have little to do with the country’s manufacturing capacity,” he said.

News of the restructuring talks gave a substantial lift to steel prices. Reinforcement bar futures in Shanghai rose as much as 6.4 percent, the most in six years, on expectations that a merger would reduce overcapacity, said Wu Zhili, an analyst at Shenhua Futures.