ay 29 (Bloomberg) -- Baosteel Group Corp., China's biggest...

ay 29 (Bloomberg) -- Baosteel Group Corp., China's biggest steelmaker, may buy a stake in Fortescue Metals Group Ltd. to reduce its reliance on supplies from rival Australian iron ore producers.

Baosteel will invest should the company deliver on its promise to become Australia's third-biggest iron ore supplier, Baosteel Chairman Xu Lejiang said in Shanghai, where he received its first shipment of iron ore from the Perth-based company. Fortescue Chief Executive Officer Andrew Forrest, 46, Australia's richest man, said he would welcome direct investment by ``Chinese industry champions.''

Aluminum Corp. of China and Sinosteel Corp. have spent more than $14 billion buying stakes in mining assets worldwide to diversify their sources of raw materials after coal prices tripled and iron ore costs increased by 65 percent this year. Acquisitions of coal and iron ore assets in Australia, the world's largest exporter of the raw materials, will rise as steelmakers try to reduce costs, UBS AG said in a May 21 report.

``Baosteel should have done that earlier to secure more iron ore resources overseas,'' said Helen Lau, a Shanghai-based analyst at Daiwa Securities Group Inc. ``The possible move is good for Baosteel as it needs to have a stable raw material supplies to feed its long-term expansion plan.''

Fortescue rose 31 cents, or 3 percent, to A$10.63 in Sydney at the 4:10 p.m. close. The stock has jumped more than threefold in the past year, helping Forrest overtake James Packer as Australia's richest man.

`Seek a Stake'

``We will seek a stake when both sides reach an accord on development strategy and prices,'' Baosteel's Xu told reporters. Fortescue sells all its iron ore to China.

Baoshan Iron & Steel Co., the publicly traded unit of Shanghai-based, state-owned Baosteel, fell 3.5 percent to 12.19 yuan in Shanghai.

Baosteel will buy more iron ore from Fortescue should the Australian producer proceed with its planned expansion, Baosteel Resources Co. President Li Qingyu said at the same ceremony. That will reduce reliance on Rio Tinto Group and BHP Billiton Ltd., the world's second- and third-largest iron ore exporters.

``An investment in Fortescue may also give Baosteel and Chinese steel mills more bargaining chips on the negotiation table in futures iron ore contract talks,'' Daiwa's Lau said.

Fortescue is now Australia's 11th biggest company and is larger than Macquarie Group Ltd. and Foster's Group Ltd. combined.

The Australian company has inked long-term contracts with 33 Chinese mills for at least 10 years, Fortescue's Executive Director Russell Scrimshaw said in an interview today in Shanghai.

``We will have larger cooperation with Chinese steelmakers in future, such as shipping and logistics,'' Scrimshaw said.

Baosteel's Xu said last month it was looking at investing in raw materials overseas to help double production capacity by 2012.