Fitch Ratings said it views the planned merger of OneSteel Ltd with Smorgon Steel Group Ltd as positive for Australia's steel sector.

The two companies announced on Monday an agreed deal under which OneSteel will acquire all of the shares in Smorgon Steel at an implied value of 1.76 aud per share or a total price of about 1.6 bln aud.

OneSteel and Smorgon Steel are Australia's second and third largest steelmakers, respectively, and are the country's only manufacturers of long steel products as well as the two major steel and metal distributors.

Fitch Ratings noted OneSteel's expanded steelmaking capacity of 2.7 mln metric tons a year, following the proposed acquisition, although small on a global scale, will account for about 35 pct of Australia's production.

BlueScope Steel is the country's largest and the only other steelmaker with annual capacity of 6.8 mln tons.

OneSteel has signalled its intention to demerge or sell Smorgon Steel's metal and steel merchandising business – which has sales of 1.4 bln aud annually and earnings before interest, depreciation and amortization (EBITDA) of 90 mln aud to reduce the chances that the merger may be blocked by the competition regulator, the Australian Competition and Consumer Commission (ACCC).

Fitch Ratings said while the combined group will hold major domestic market positions for a number of long steel products, a significant level of import competition and the intention to sell Smorgon Steel's merchandising business may alleviate ACCC concerns in relation to potential lessening of competition.

'The acquisition is consistent with the global trend of consolidation in the international steel sector in recent years,' the firm said.