MercoPress. South Atlantic News Agency

To ensure supply and price Asian steelers buy iron ore mines

A consortium of five Japanese steelmakers and a South Korean trading firm will invest 3.1 billion US dollars to acquire 40% of a Brazilian iron ore mining company Mineiros S.A. to secure supplies of iron ore, trading house Itochu Corp. announced Friday.

The consortium consists of Nippon Steel Corp., JFE Steel Corp., Sumitomo Metal Industries Ltd., Kobe Steel Ltd., Nisshin Steel Co. and Itochu. South Korea's leading steelmaker Posco also will join in the capital investment. The companies together will take a stake of about 40% in Namisa, a subsidiary of Brazilian steelmaker Companhia Siderurgica Nacional (CSN), which will continue to hold the other 60%. Itochu will shoulder about 40% of the consortium's investment; Nippon Steel, JFE Steel and Posco will invest 16.2% each; Sumitomo Metal Industries and Kobe Steel 6.57% and 3.08%, respectively, with Nisshin Steel, 1.75%. In return, the consortium will gain the right to exploit Namisa's iron ore mines in southeastern Brazil and the right to use railways to transport iron ore from the mines to ports. The consortium is to start extracting iron ore from the mines in 2009. By 2013 the mines are expected to have an annual production of 38 million tons of which 13.7 million tons directly for the consortium. Japan is completely dependent on foreign iron ore importing about 130 million tons a year of which about 60% from Australia and 20% from Brazil. International resource giants, such as BHP Billiton and Rio Tinto, account for a large share of iron ore production. Suppliers have been bullish at price negotiations lately amid sharply rising iron ore demand worldwide, particularly from China. This fiscal year, Japanese steelmakers have had to accept a 100% increase in purchase prices from a year earlier, raising the cost of steel and iron products while squeezing profits of auto and electronics companies, leading to price hikes in general. Iron ore prices are expected to remain high for some time, so steelmakers are trying to increase the amount of the raw material they secure directly, bypassing resource giants. By co-owning iron ore mines, Asian companies are trying to secure stable supplies of iron ore and remain economically competitive.