Shougang Group, China's fifth-biggest steel mill, plans to join forces with Brazilian iron ore provider CVRD to ship ore to its new North China base.

 

The two parties have held preliminary talks on forming a joint venture to ship iron ore from Brazil to Shougang's new plant, which is being constructed in Caofeidian in Bohai Bay, Chen Hanyu, an official from the Beijing-based company, told China Daily.

 

Shougang is also considering building an iron ore pelletizing plant with CVRD in Caofeidian, Hebei Province, to supply the new plant, Chen said.

 

The new plant will be completed in 2008. It will have an annual production capacity of 8 million tons, but could be expanded to 20 million tons a year in the future.

 

Chen would not reveal how much Shougang could spend on the possible partnership with CVRD.

 

"The move is designed to cut freight costs to offset mounting iron ore prices and secure a stable supply," he said.

 

He said the joint venture's planned iron ore fleet would consist of vessels with a loading capacity of at least 300,000 tons each, up from the less than 200,000 tons of ships Shougang currently uses, which will help the company slash freight costs by almost half.

 

All the ore needed for the new Caofeidian plant, which will include a deepwater wharf, will come from abroad, mainly from Australia and Brazil, he added.

 

Liu Shuiyang, vice-president of Shougang, last month said the company would import 15 million tons of iron ore this year, up from an estimated 12.5 million tons last year.

 

Iron ore prices have been climbing rapidly in recent years mainly boosted by strong demand from China, the world's biggest iron ore consumer and importer.

 

Baosteel, China's top steel group, on behalf of more than 100 major steel firms in the country, last month agreed on a 9.5 percent increase in iron ore prices for 2007 with the world's three largest suppliers CVRD and Australia's BHP Billiton and Rio Tinto.

 

The increase came after a 19 percent rise in 2006 and a massive 71.5 percent hike in 2005.

 

The China Iron & Steel Association last month estimated the nation's 2006 iron ore imports would reach 325 million tons, up 18.2 percent from the previous year. It predicted imports this year would rise by 30 million tons, or 9.2 percent.

 

Tian Shuhua, a steel industry analyst from China Galaxy Securities Co Ltd, said: "Freight accounts for the bulk of iron ore's CIF (cost, insurance and freight) prices for Chinese steel mills, which have been violently fluctuating in recent years."

 

"Shougang's partnership with CVRD will enable it to control price risks and obtain a reliable iron ore supply," Tian said.

 

Freight now represents more than one-third of average CIF prices of iron ore for Chinese steel mills which now stay at about $64 per ton.

 

Shougang's Liu said last month the company plans to double steel production from the level of 2005 to 20 million tons a year by 2010.

 

The company currently has a combined production capacity of 13 million tons in Beijing and Hebei.

 

It is moving most of its facilities from Beijing to Hebei as part of the government's efforts to alleviate pollution in the city, which will host the 2008 Olympics.

 

CVRD, which controls one-third of global iron ore seaborne trade, is beefing up efforts to explore the market in China.

 

(China Daily January 4, 2007)