STEEL group Corus last night saw its share price shoot seven per cent higher following a report which said it had held merger talks with a Russian rival.

According to the Financial Times (FT), Corus has discussed a partnership with Evraz - Russia's largest steel producer - that would catapult it into the top six in the industry by volume.

The combined group would have an output of about 32 million tonnes.

Reports suggested chief executive Phillippe Varin was looking for partnerships to source low-cost raw steel - known as "slab", to be processed in Corus' finishing operations close to the final customer in the UK.

Corus may need to source extra slab after its subsidiary Teesside Cast Products, which employs 1,700 manufacturing steel slab, was set up as a standalone company.

Instead of supplying just Corus, TCP has signed a ten-year deal to supply a consortium of global steel companies.

From the end of this year, Corus will receive only 22 per cent of the slab made at Redcar.

A spokeswoman for Corus said: "We don't comment on market speculation so we will not be saying anything about the report in the Financial Times.

"As previously stated, Corus has said that in the general development of the company, it is continually exploring opportunities in low-cost, higher-growth countries, including access to low-cost slab and raw materials."

The steel industry is seeing consolidation, with Mittal Steel recently mounting a £13bn hostile bid for its rival Arcelor.

Analysts believe smaller producers, such as Corus, have to react to this - as a combination of Mittal and Arcelor would have an output three times higher than any other company in the sector.

Shares in Corus, formerly British Steel, soared to a four-year high last week after it struck an agreement to sell its aluminium business to United States firm Aleris International for £570m.

The Anglo-Dutch company, which employs 24,000 people in the UK, including almost 3,000 in the North-East, said it would plough some of the proceeds of the sale into further reducing debts of £821m.

Speculation that Corus is ready to take part in the consolidation of the steel industry drove its stock more than seven per cent higher during trading.

This valued Corus at £4bn, although analysts believe an offer of £5bn would have to be put on the table before another company could expect to win outright control.

A source for the FT said the talks between Corus and Evraz had not yielded any results so far and it might be difficult for a Russian company to buy assets in the UK