The pending merger of the world's two largest steel producers puts increasing pressure on U.S. Steel and other domestic producers to find a partner in the rapidly consolidating industry.

Mittal Steel, the world's largest producer, and No. 2 Arcelor concluded a rocky, six-month courtship over the weekend, with Mittal agreeing to acquire its reluctant mate for $34 billion in cash and stock. The combination will create a company that will control nearly 10 percent of the global steel market and capable of producing three times more steel annually than its nearest competitor.

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The alliance is the latest in a series of mergers that have transformed what until a few years ago had been an industry dominated by smaller producers operating mostly within their own borders. Consolidation has expanded the reach of top steelmakers around the globe, increasing their leverage in dealing with suppliers and customers.

Analysts say the merger of Mittal and Arcelor increases pressure on other steelmakers, including Pittsburgh-based U.S. Steel and No. 7 Nucor, to grow through consolidation. The question is whether they will be buyers or targets of overseas producers such as Germany's Thyssen Krupp that are seeking to expand in the U.S. market.

"It puts pressure on all medium-sized companies, not only in the United States," said Tony Taccone of First River Consulting in Pittsburgh.

The combined company, to be known as Arcelor-Mittal, will be capable of producing 118 million tons of steel annually and have annual revenue of $71.9 million.

By comparison, Japan's Nippon Steel, which will become the world's second-largest producer, produced 31.5 million tons of steel last year. U.S. Steel, the largest U.S. steelmaker and the world's 6th-largest if the Mittal-Arcelor deal is consummated, produced 23 million tons last year and posted sales of $14 billion. Since 2000, it has beefed up through its $1.3 billion acquisition of bankrupt National Steel in 2003 as well as purchases of formerly government-owned producers in Slovakia and Serbia.

Earlier this year, U.S. Steel directors were briefed on preliminary merger discussions with rival AK Steel of Middletown, Ohio. Since word of the talks leaked in March, both companies have declined comment.

U.S. Steel spokesman John Armstrong yesterday declined comment on the impending Mittal-Arcelor nuptials.

Wheeling-Pittsburgh Steel is discussing a possible alliance with Brazilian steelmaker Companhia Siderurgica Nacional and is also being courted by Esmark, a Chicago Heights, Ill., steel processor interested in producing steel on its own. Industry observers say the fate of Wheeling-Pitt, which has struggled as the rest of the industry has reported healthy profits, could be determined in a matter of weeks.

Wheeling-Pitt spokesman James Kosowski declined comment on the talks with CSN, disclosed May 5.

Steel stocks, which have tumbled with other materials stocks in recent weeks on economic concerns, didn't budge much yesterday despite the implications of Mittal acquiring Arcelor.

U.S. Steel shares finished at $66.05, up $2.03 while Nucor rose 54 cents to $51.91. AK Steel inched up 9 cents to $13.34 while Wheeling-Pitt breached the $20 mark before closing at $19.95, up 59 cents.

Shares of Mittal, the protagonist in the unfolding drama, fell 77 cents to $31.40.

The enthusiasm over the announcement was tempered by concerns the merger could be overturned by two other steel producers that were drawn into the protracted, often heated discussions between Mittal and Arcelor.

Mittal catapulted to the top spot through its 2005 acquisition of International Steel Group, a U.S. producer cobbled together from the carcasses of Bethlehem Steel, LTV and other bankrupt steelmakers.

It first approached Arcelor about a marriage in January, but was rebuffed. Arcelor sought to prevent the merger through an alliance with Russian producer Severstal, but relented after Mittal raised its bid twice and agreed to concessions that will give Arcelor shareholders nearly 51 percent ownership of the combined company. Mittal's family will own about 44 percent of the combined company's shares.

Arcelor shareholders will vote Friday on whether to terminate the proposed alliance with Severstal. That would clear one major hurdle but another remains. Analysts expect U.S. regulators to raise antitrust concerns because of Arcelor's acquisition of Dofasco, a Canadian producer.

Mittal is proposing selling Dofasco to Thyssen, but Arcelor is objecting.

If the German producer can't grab Dofasco, a key North American automotive industry supplier, Thyssen likely will go shopping elsewhere on the continent, said Charles Bradford of Bradford Research. "The two likely names are AK Steel and U.S. Steel," he said.

As for Nucor, a Charlotte, N.C., nonunion producer, Mr. Bradford says that "with the cash they have on hand, that company is vulnerable big-time."

Steelmakers aren't the only metals producers placing their bets on consolidation.

Phelps Dodge Corp. yesterday announced plans to acquire Inco Limited and Falconbridge Limited for about $40 billion. The merger will create the world's largest nickel producer and the largest publicly traded copper producer.