Steel giants link up in Cambodia to cut ore costs

PUBLISHED : Friday, 25 May, 2007, 12:00am
UPDATED : Friday, 25 May, 2007, 12:00am


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Four mainland steel giants, led by Wuhan Iron & Steel, have set up a joint venture to invest in iron ore projects in Cambodia - a move that may make them less vulnerable to rising import prices.

Wuhan Steel, the country's fifth-biggest steel mill operator, owns 50 per cent of the venture, while Baosteel Group, the mainland's biggest steelmaker, holds a 20 per cent stake.

Anshan Iron & Steel Group and Beijing-based Shougang Iron & Steel Group each owns 15 per cent, according to a statement posted on Wuhan Steel's website.

The venture's first project was the exploration and development of mines in Cambodia's Preah Vihear province, the statement said. Preah Vihear has 2.5 billion tonnes of iron ore deposits, according to preliminary figures.

'Steelmakers that don't have their own iron ore resources won't survive the fierce competition in the industry,' said Wuhan Steel deputy general manager Li Fushan.

Mainland mills have been stepping up iron ore exploration and buying stakes in domestic and overseas mines in an effort to reduce their reliance on imports.

Massive steel consumption in the mainland has driven global iron ore prices to record levels.

However, only a few projects have been secured so far, including Baosteel's stakes in mines in Brazil and Australia, Shougang's investment in a Peruvian mine, and Australian mine investments by Wuhan Steel and Anshan Steel.

'Investments by Chinese mills in overseas iron ore resources could help secure supplies to meet rising demand in China and help avoid the risk of price volatility,' said China Iron & Steel Association vice-secretary-general Qi Xiangdong.

China, the world's largest buyer of iron ore, imported 325 million tonnes last year, accounting for almost 50 per cent of global trade. About half of the ore the country consumed was imported, according to the National Development and Reform Commission, the country's top economic planner.

Iron ore prices were expected to rise next year on continued demand from the mainland, marking the sixth consecutive annual increase, said Guotai Junan Securities analyst Steven Chen Yue.

Prices rose 9.5 per cent this year, following a 19 per cent increase last year and a 71.5 per cent jump in 2005. The increases were the outcome of talks with global suppliers such as Brazil's Vale do Rio Doce and Australia's BHP Billiton and Rio Tinto.

Chinese steelmakers initially resisted the increase last year, despite acceptance by importers in other countries. They eventually agreed to the price rise as there was no other viable supply option.

Mr Chen said the new joint venture was not expected to have a significant impact on supply, or improve the steelmakers' bargaining power. 'The iron ore market is dominated by the world's top three suppliers, while Chinese mills are scattered. In such a monopolistic market, bargaining power is in the hands of the suppliers,' he said.

Line of supply

Mainland steelmakers are seeking to reduce their reliance on imports

The amount of iron ore imported by China last year, in tonnes: 325m