Specialty steel is metal produced using additional elements that give special properties to the steel such as heat resistance, hardness or corrosion resistance.

The acquisition represents the further consolidation of China's domestic steel mills.

CITIC's subsidiary Xinye Steel will essentially purchase the share of a Nanjing Iron & Steel subsidiary that was previously held by Fosun International Ltd and that Fosun planned to sell to Jiangsu Shagang.

Under the deal, Nanjing Iron & Steel issued new capital that Xinye will purchase for 13.58 billion yuan ($1.97 billion), giving Xinye a 55.25% stake in Nanjing Iron & Steel Group, CITIC said in a to the Hong Kong Stock Exchange.

At the same time, Nanjing Iron & Steel exercised its right of first refusal to prevent Fosun from selling its 60% holding in Nanjing subsidiary Nanjing Iron & Steel United to Jiangsu Shangang, paying Fosun 13.58 billion yuan.

Xinye's acquisition will increase CITIC's specialty steel production capacity to over 30 million tonnes per year and enhance its competitive advantages in bar steel, wire steel and plate steel products, CITIC said in the statement.

Share prices of Nanjing Steel rose 0.26% to 3.90 yuan as of 0242 GMT on Monday, while that for CITIC slid 0.2% to 9.16 yuan.

($1 = 6.8915 Chinese yuan renminbi)

(Reporting by Amy Lv, Siyi Liu and Dominique Patton; Editing by Christian Schmollinger)