Jinan Iron and Steel Co. Ltd. and Laiwu Iron and Steel Co. Ltd. said that the Shandong provincial branch of the State Assets Supervisory and Administration Commission (SASAC) plans to merge their parent companies to create Shandong Iron and Steep Corp., Forbes reported.   The merger of China's seventh-largest steel company, Laiwu, and sixth-placed Jinan would create the second-largest group in the industry locally behind Baosteel. Jinan Iron and Steep Group Corp and Laigang Group will continue to operate independently within the new entity.    Jinan Steel had capacity of 10.42 million tonnes last year and Baiwu 10.34 million tonnes. Their combined capacity would put them in second place behind Baosteel which had 22.7 million tonnes production capacity, said Forbes.   However, whether the consolidation among the larger companies will solve the over-capacity problem remains a question as a lot of the new output is coming from the hundreds of small, private steel mills that have been established in the last five years.