Laiwu Steel Group Co and Jinan Iron & Steel Group merged yesterday to create China`s second biggest mill.

Shandong Iron & Steel Group Co was established yesterday, Laiwu and Jinan Steel`s publicly traded units said in filings to the Shanghai Stock Exchange. The companies, in Shandong, have prepared for the merger since August 2006.

A rally in commodities prices has spurred takeovers. Bigger Chinese mills may negotiate lower prices for iron ore, which will rise for a sixth year next month, and ward off unwanted suitors.

Shandong Steel could produce 23.8 million metric tons of steel a year, based on Laiwu and Jinan Steel`s 2007 output.