baosteel wuhan seeking stakes in australian m

Baosteel Wuhan Seeking Stakes in Australian Mines (Update2)

By Xiao Yu and Tan Hwee Ann

Feb. 13 (Bloomberg) -- Baosteel Group Corp., China's largest steelmaker, and rival Wuhan Iron & Steel Group are seeking to invest in iron ore projects in Australia to secure supplies to meet rising demand.

``We are looking closely at potential iron ore projects,'' Zhang Yong, Baosteel's Australian investment manager, said in an interview before a mining conference starting today in Perth. Wuhan Steel is in talks to take a stake in a A$2.6 billion ($2 billion) iron ore project, Dai Jianqiu, its manager for iron ore purchases, said in an interview.

Demand for steel in China, the world's largest producer of the alloy, is forecast to grow 8.4 percent a year to 2010 as the nation builds more skyscrapers, automobiles and home appliances. Australia last quarter had about A$5.95 billion of iron ore projects approved or under construction.

``Chinese steel producers are investing in Australian iron ore mines in order to secure supplies for their rapidly growing steel industry,'' said Rohan Kendall, a commodity analyst at the Australian Bureau of Agriculture and Resource Economics.

Shares of Baoshan Iron & Steel Co., the publicly traded unit of Baosteel, rose as much as 0.18 yuan, or 2.1 percent, to 8.89 yuan in Shanghai and traded at 8.88 yuan at 10:24 a.m. local time. Shares of Wuhan Steel rose as much as 3.9 percent.

`In Talks'

Chinese companies are studying more than 15 minerals and energy projects in Australia worth A$10 billion, Henry Wang, a senior investment commissioner at the Australian Consulate- General in Shanghai, said Feb. 8. About half of the projects are in iron ore, the rest in coal, natural gas and bauxite ore. Australia is the biggest supplier of iron ore, coal and alumina.

``We are in talks with Citic Pacific Ltd. to join them in their iron ore project in Western Australia'' state, Wuhan's Dai said Feb. 8. Hubei province-based Wuhan Steel is China's fifth- biggest steelmaker by 2006 output.

Hong Kong-based Citic Pacific's Cape Preston iron ore project was named a major project by the Australian government in December. Citic, a unit of China's biggest state-run company, last month awarded a $1.1 billion contract to China Metallurgical Group Corp. to develop the mine.

``So far, we've not decided on a specific project,'' Baosteel's Zhang said Feb. 8. Shanghai-based Baosteel formed a joint venture with Rio Tinto Group's Hamersley Iron unit in Western Australia in 2002, according to Hamersley's Web site.

Mining companies and officials from China and Australia will be among those attending the Asia-Pacific Economic Cooperation's third meeting of mining ministers being held this week in Perth, the capital of Western Australia state. Miners will discuss commodity supply and demand, and infrastructure constraints, Louise Dodson, a spokeswoman for the Minerals Council of Australia, said Feb. 8.

Japan, U.S.

The countries represented at the meeting, including the U.S., Canada and Japan, account for more than 70 percent of global consumption of coal, iron ore and tin.

The Australian government wants Chinese companies to build ports and processing plants in Australia, rather than just invest in mines, said the consulate's Wang.

Anshan Iron & Steel Group, China's third-biggest steelmaker, is investing in Gindalbie Metals Ltd.'s A$1 billion mining project in Western Australia. Sinosteel Corp., China's second- largest iron ore trader, has signed an agreement to study the development of a A$1.5 billion iron ore project with Midwest Corp. and also has a joint venture with Rio in Australia.

Cia. Vale do Rio Doce, Rio Tinto and BHP Billiton Ltd. account for three-quarters of iron ore exports globally. Five straight years of price increases have driven Chinese companies to seek to bankroll alternate suppliers in Australia, which shipped $7.3 billion of the ore to the Asian nation last year.

Three Suppliers

``We have had considerable support from steelmakers that said we will be supported if we can become a new force in iron ore,'' said Graeme Rowley, director of operations at Fortescue Metals Group Ltd., which is selling 92 percent of its ore to Chinese customers. ``There's a feeling that just having three major suppliers is not in their best interests.''

China overtook Japan as the world's largest iron-ore buyer in 2003. Imports rose 19 percent last year, and could rise another 10 percent this year, an industry official said in December. The country's iron-ore imports rose 32 percent in January, the Beijing-based customs office said on its Web site yesterday.

``The Chinese are very interested in securing alternate supplies, and you can expect more mergers, acquisitions and joint ventures in Western Australia,'' said John Veldhuizen, an analyst at BBY Ltd