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Hunan Valin seeks acquisitions to double steel capacity
Monday, 19 Oct 2009
Bloomberg reported that Hunan Valin Iron & Steel Group a Chinese investor in Australian iron ore producer Fortescue Metals Group Ltd is seeking acquisitions to double its steelmaking capacity to 30 million tonnes in three years.

Mr Li Xiaowei Chairman of Hunan Valin said the mill will buy competitors through a joint fund with state owned China Huarong Asset Management Corp. Hunan province-based Valin is China ninth largest steelmaker and its output last year was a third of Shanghai Baosteel Group Corp.

He said that China, the world’s largest steelmaking nation, is working on plans to advance mergers among its mills to curb excess capacity and boost their buying power for raw materials, the nation’s steel association said this week. An acquisition may occur by the end of the year.

Mr Li said “We’ll have a noteworthy achievement during China reshuffle of the steel industry. We’ve got an investment fund to carry out acquisitions. We will inject those assets into our listed unit later. He said that the Valin group wants to be one of the world 500 largest companies which would mean having sales of at least CNY 120 billion to CNY 130 billion. He didn’t say what existing sales and profit were for the group.

Mr Li said without naming them that all the acquisition targets need to be profitable and should either add markets, technology and products or have raw materials assets. He said that ArcelorMittal, the world largest steelmaker and a 33% stakeholder in the listed Valin Steel unit agreed to support the acquisition plan.

Mr Li said the partners discussed buying raw material assets together in 2007. Valin spent AUD 1.3 billion in February buying a stake in Fortescue, Australia’s third largest iron ore producer. The Chinese company will consider proposals to buy iron ore suppliers with ArcelorMittal although it isn’t seeking purchases now.

He said that China, the world’s largest iron ore consumer, should ask ArcelorMittal to jointly bargain for annual iron ore prices. Iron ore prices have advanced six out of the previous seven years hurting profits at Chinese mills.

Mr Li said overcapacity and fragmentation in China steel industry is hampering the nation’s ability to bargain for lower iron ore prices with Rio Tinto Group, Vale SA and BHP Billiton Ltd. Rising imports have also hurt attempts by the China Iron & Steel Association to get lower prices.

Data from the nation customs office showed iron ore imports by China jumped 30% to a record in September from the previous month. Purchases in the first nine months rose 36% to 469.4 million tonnes from a year earlier.