Lakshmi Mittal, the steel magnate, said this week he planned to create an £11.42bn company that would be the biggest in the sector and a rival to Corus and the Luxembourg firm Arcelor

Mittal will merge his LNM and Ispat businesses with the American firm International Steel Group, which he is acquiring for £2.45bn. The resulting company, Mittal Steel, will be the first truly global steel company.

In the UK, the Anglo-Dutch group Corus is the biggest provider of structural steel for construction, including heavy sections and plate used in the steel frames for buildings, bridges and sports stadiums.

Within Mittal Steel, the competition to Corus will come from ISG’s Bethlehem Steel arm, which will be integrated into the enlarged group with the aim of supplying steel to the construction industry.

In Europe, the sheer size of Mittal Steel will pose a challenge to its rivals. Mittal is expected to have an annual output of about 70 million tonnes, compared with 42.8 million tonnes at Arcelor and 19.1 million tonnes at Corus.

The deal puts pressure on Corus to consolidate further. Last month the company went into the black for the first time since it formed in 1999, with a £163m pre-tax profit for the first six months of the year.

A Corus spokesperson said: “We can see that consolidation is the way to go for the world steel industry.”

Mittal’s bid to become the dominant force in world steel production comes as demand from China has led to sharp price rises, with the price of many grades of steel increasing by 50-100%.

However, Derek Tordoff, the director general of the British Constructional Steelwork Association, said that he was not expecting the same level of increases next year.

“Steel prices have gone up significantly in 2004 due to external pressures, but we expect that there will be greater stability next year,” he said.

The BCSA is expecting a record year for 2004 in the output of steel.