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Nippon Steel to Source More Coking Coal, Ore Itself (Update1)

March 8 (Bloomberg) -- Nippon Steel Corp., Japan’s largest steelmaker, will pursue investments in iron ore and coal mines, joining rivals in a bid to curb costs and secure supplies of the steelmaking ingredients.

The company wants to supply 50 percent of its raw material needs by buying stakes in mines or developing new ones “as early as we can,” Executive Vice President Shinichi Taniguchi said March 4 in an interview in Tokyo. Mines partly owned by the mill supply 35 percent of its iron ore and 25 percent of its coking coal needs.

Nippon Steel, ArcelorMittal and Posco are scouring the world for resources as prices rise. BHP Billiton Ltd., the world’s largest coking-coal exporter, last week won a 55 percent price increase from Tokyo-based JFE Holdings Inc., Japan’s second-biggest steelmaker, for a three-month contract from April 1.

“We have to defend ourselves by increasing the proportion of the materials we secure from our own sources,” Taniguchi said. “If we see a good offer, we’ll go for it.”

Nippon Steel shares rose 2 percent to 350 yen at 12:37 p.m. on the Tokyo Stock Exchange.

Essar Group said at a weekend news conference its purchase of Trinity Coal Corp., the Indian company’s first overseas coal mine acquisition, will help lock in raw materials.

Aggressive Pursuit

Posco, Asia’s most profitable mill, will “aggressively” pursue investments in mines, Chief Executive Officer Chung Joon Yang said last month in Seoul. ArcelorMittal, the biggest steelmaker, supplies about half of its iron ore needs and plans to raise the share to between 75 percent and 85 percent by 2014, Bill Scotting, head of strategy, said last December.

“Global demand for steel products will expand in longer term as the population and personal incomes grow,” Taniguchi said. “The significance of having our own sources will increase.”

Nippon Steel, Japan’s four other biggest blast furnace mills and Itochu Corp. in 2008 agreed with South Korea’s Posco to buy 40 percent of Brazilian iron ore producer Nacional Minerios SA, known as Namisa, for about $3.12 billion.

Nippon Steel’s investment in Namisa will boost the ratio of its ore procurement to more than 40 percent when the Brazilian company’s expansion is completed in 2013, Taniguchi said.

Raising Output

The Brazilian miner is slated to raise annual iron ore output to 38 million tons from the 18 million tons forecast for 2009, according to an October 2008 statement by the Japanese steelmakers.

Nippon Steel’s other investment in mines include the Rio Tinto-led Robe River iron ore venture and the Warkworth coal mine in Australia, as well as Vale’s Nibrasco iron-ore project in Brazil.

JFE Holdings is spending 50 billion yen ($553 million) to buy a 20 percent stake in a mine in Queensland Australia, its biggest investment in coal, the company said on Dec. 17.

The cost of 62 percent iron-content ore delivered to the port near Tianjin in northeastern China, was $133.10 a ton on March 5, according to the Steel Index, up from $66.30 a year ago.

BHP agreed to sell coking coal on shorter term contracts to customers in Europe, China, India and Japan, breaking away from annual pricing. JFE said on March 5 it agreed to pay $200 a metric ton between April and June.

Nippon Yusen K.K., Japan’s largest shipping line, forecast in October global sea trade of iron ore will probably reach 1.33 billion tons by 2019. The compares with an estimated 908 million tons for 2009, according to data compiled by Clarkson Research Services Ltd.

Iron ore contract prices may rise 70 percent this year as producers seek rates closer to cash levels, Nomura Holdings Inc. said on March 1.

--Editors: Aaron Sheldrick, Tan Hwee Ann.

To contact the reporters on this story: Masumi Suga in Tokyo at [e-mail]; Yasumasa Song in Tokyo at [e-mail].

To contact the editor responsible for this story: Andrew Hobbs in Sydney at [e-mail].

http://www.businessweek.com/news/2010-03-07/nippon-steel-plans-to-source-more-of-its-own-coal-ore-supplies.html