Firstenergy Corp. (FE)

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Wuhan Steel Group Seeks More Iron Ore Assets Overseas (Update1)

March 7 (Bloomberg) -- Wuhan Iron & Steel Group, China’s third-biggest steelmaker, is seeking to invest in more overseas iron ore assets to cut reliance on expensive imports, General Manager Deng Qilin said.

“We aim to be self-sufficient in iron ore supplies in three to five years and reduce purchases,” Deng, who’s also chairman of the China Iron & Steel Association, told reporters today in Beijing during the annual National People’s Congress. “We will continue to invest overseas even as the cost rises. We have achieved good returns from our previous investments.”

Owning resources gives Chinese steelmakers more control over raw material prices and reduces dependence on overseas suppliers like BHP Billiton Ltd., Rio Tinto Group and Vale SA. Contract iron ore prices may rise 60 percent this year on strong Asian demand and a push by BHP to peg pricing to higher spot levels, Morgan Stanley said last week.

This year’s price negotiations with suppliers will be “difficult” because of “differences in view,” Deng said. “We can’t accept a price that would force us to incur losses.”

Chinese steelmakers may have to accept a price increase higher than the 20 percent than they expected this year, Angang Steel Co. Chairman Zhang Xiaogang said on March 5 in Beijing.

The benchmark cash price of iron-ore delivered to China jumped to $134.50 a metric ton on March 2, the highest since at least Dec. 12, 2008, according to The Steel Index. China’s imports rose 42 percent to a record 628 million tons last year.

China failed to reach an accord over prices last year with Rio, BHP and Vale, the world’s three biggest iron ore suppliers. Domestic steelmakers reached private agreements with the suppliers instead, Deng said.

Wuhan Steel expects to produce 36 million tons of crude steel this year, up from 30.3 million tons in 2009, Deng said. The nation’s steel output may rise to 600 million metric tons this year, from 568 million tons in 2009, Deng said. Production capacity probably has exceeded 700 million tons, he said.

Chinese steelmakers, which controlled almost half of the world’s production last year, will have small profits over the next 10 years because they cannot raise prices enough amid the domestic overcapacity, Deng said.

The Chinese government should regulate the market for iron ore trading to stop speculation over prices, he said.

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--Helen Yuan. Editors: Gregory Turk, Eugene Tang.

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

http://www.businessweek.com/news/2010-03-07/wuhan-steel-group-seeks-more-iron-ore-assets-overseas-update1-.html