Directors of LTV Corp. and Lykes Corp. today announced approval in principle of a proposed merger that analysts say is being watched closely in the steel industry.

If the merger plan is consumated, it would create a steel company roughly the size of the nation's third largest steel producer, National Steel Corp.

In an industry that is losing money because of foreign competition and antiquated equipment, some smaller steel companies may survive only through merger, some analysts have suggested.

LTV Corp., based in New Orleans, is the parent company of Youngstown Sheet & Tube, the eighth-largest steel producer, which recently laid off thousands of workers at its Campbell Works plant in Youngstown, Ohio.

Along with such giants at U.S. Steel and Bethlehem Steel, both companies announced losses in the third quarter. And both firms blamed the losses, in part on cheap imported steel that is taking a record share of the U.S. market.

"The combined companies make an exceptionally good fit, providing the production and other efficiencies needed to improve profit margins and better equip us to compete successfully within the industry and with imported steel," the companies said in a joint statement today.

The merger plan is subject to stockholder approval and clearances by a variety of government agencies, including the Justice Department.

If the proposed merger meets government antitrust tests, "It might make sense for other companies," said one industry watcher. "I think there is intense interest in terms of whether this will go through. If it does, then those who feel a need for a merger or some type of aid might begin to make serious overtures."