Brazil's mining giant Companhia Vale do Rio Doce (CVRD) announced on Thursday it has signed a memorandum of understanding with China's Baosteel Group Corporation, to build a steel plant with an initial production capacity of five million tons per year.

The plant will be located in the industrial district of Anchieta, in the southern state of Espirito Santo, is expected to generate 3,000 direct jobs when it starts operating.

CVRD said that at the start of the plant's construction it will hold a participation of 20 percent, while Baosteel will have up to80 percent.

The agreement with Baosteel is consistent with CVRD's strategy of attracting new investment in the steel industry in Brazil and will increase iron ore consumption and create job opportunities in Brazil, CVRD said.

The steel project in Espirito Santo will replace another one, initially expected to take place in Maranhao state, in the northeast region.

CVRD's CEO Roger Agnelli recently told local press that the previous project was cancelled because the company did not reach an agreement with Maranhao's government on the plant's location.

CVRD is currently participating in the construction of a steel plant in Rio de Janeiro, in association with Germany's ThyssenKrupp Steel AG. Additionally, it has planned to implement another steel project in Ceara state, in partnership with South Korea's Dongkuk Steel and Italy's Danieli.

In December 2006, CVRD favored Baosteel in the choice of the reference price for iron ore trade in 2007. This is the first time that the Brazilian mining company has favored a Chinese company in the choice of the price.

(Xinhua News Agency August 24 2007)