Hunan Valin Iron & Steel Group seeks acquisitions

Valin’s Li seeks acquisitions to double steelmaking capacity. Hunan Valin Iron & Steel Group, a Chinese investor in Australian iron ore producer Fortescue Metals Group Ltd., is seeking acquisitions to double its steelmaking capacity to 30 million metric tons in three years. The mill will buy competitors through a joint fund with state-owned China Huarong Asset Management Corp., Chairman Li Xiaowei, 57, said in an Oct. 13 interview in Beijing. Hunan province-based Valin is China’s ninth-largest steelmaker, and its output last year was a third of Shanghai’s Baosteel Group Corp., the nation’s biggest producer. China, the world’s largest steelmaking nation, is working on plans to advance mergers among its mills to curb excess capacity and boost their buying power for raw materials, the nation’s steel association said this week. An acquisition may occur by the end of the year, Li said. “We’ll have a noteworthy achievement during China’s reshuffle of the steel industry,” Li said. “We’ve got an investment fund to carry out acquisitions. We will inject those assets into our listed unit later.” Hunan Valin Steel Co., the Shenzhen-listed unit, rose 0.5 percent yesterday to 6.74 yuan, taking the year’s advance to 47 percent. The Valin group produced 11.3 million tons of steel last year. Sales Target. The Valin group wants to be one of the world’s 500 largest companies, which would mean having sales of at least 120 billion yuan ($18 billion) to 130 billion yuan, Li said. He didn’t say what existing sales and profit were for the group. All the acquisition targets need to be profitable, and should either add markets, technology, products or have raw materials assets, Li said, without naming them. The mill makes products including construction H-beams, steel plates, auto sheets and wire rods. Valin agreed in June with Huarong Asset, one of the nation’s four managers of bad loans for state-owned banks, to start a 1 billion yuan fund for acquisitions. The fund may increase its capital to 10 billion yuan, the steelmaker said at the time, without giving a timeframe. ArcelorMittal, the world’s largest steelmaker and a 33 percent stakeholder in the listed Valin Steel unit, agreed to support the acquisition plan, Li said. The partners discussed buying raw material assets together in 2007. Valin spent A$1.3 billion ($1.2 billion) in February buying a stake in Fortescue, Australia’s third-largest iron ore producer. The Chinese company will consider proposals to buy iron ore suppliers with ArcelorMittal, although it isn’t seeking purchases now, Li said. Iron Ore Talks. China, the world’s largest iron ore consumer, should ask ArcelorMittal to jointly bargain for annual iron ore prices, Li said. Iron ore prices have advanced six out of the previous seven years, hurting profits at Chinese mills. Chinese steelmakers this year have demanded a bigger price cut for iron ore than the 33 percent offered to Japanese and Korean rivals. Overcapacity and fragmentation in China’s steel industry is hampering the nation’s ability to bargain for lower iron ore prices with Rio Tinto Group, Vale SA and BHP Billiton Ltd., Li said. Rising imports have also hurt attempts by the China Iron & Steel Association to get lower prices, Li said. “Where there is oppression, there is resistance,” Li said, quoting Mao Zedong. “Why shouldn’t we grab back the resources and fight back against those who have beaten us?” Iron ore imports by China jumped 30 percent to a record in September from the previous month, data from the nation’s customs office showed Oct. 14. Purchases in the first nine months rose 36 percent to 469.4 million tons from a year earlier. Steel prices in China have fallen 25 percent since reaching a 10-month high on Aug. 4, as overproduction offset demand created by government stimulus spending. Prices probably won’t rebound in the next two months, Li said.