Sumitomo Metal to boost sales to Taiwan

"The deal with China Steel secures us a large buyer."

Kazuo Tanakamaru, president of Sumikin Iron & Steel

Sumitomo Metal Industries Ltd, Japan's No. 3 steelmaker, said it may build a blast furnace at its Wakayama plant, pending an agreement to sell more of the metal to China Steel Corp (中鋼), the nation's top producer.

Sumitomo Metal said this week it will triple slab exports to China Steel to 1.6 million tonnes in April 2005 from 544,000 tonnes last year. Renegotiation of the contract in 2010 would require renovating the No. 4 blast furnace at Wakayama or building a larger one.

"The deal with China Steel secures us a large buyer," said Kazuo Tanakamaru, the president of Sumikin Iron & Steel Corp, a Sumitomo Metal unit.

"Depending on what happens when we renegotiate, we may build a larger blast furnace to replace No. 4," he said in an interview in Wakayama.

Sumitomo Metal may ask China Steel to invest in a new furnace, which can take three years to plan and three more to build, spokesman Toshifumi Matsui said. A 5,000m3 furnace Sumitomo is building at its Kashima plant cost ?46 billion (US$418 million) and could produce about 3.6 million tonnes a year, he said.

The No. 4 furnace which produces half of Wakayama's 3.26 million tonnes a year, has been in operation for 21 years and is the company's oldest furnace.

Sumitomo Metal said it will discuss building a furnace with China Steel when the No. 4 furnace comes up for renewal.

Sumitomo Metal's shares rose 137 percent in the past 12 months, against a gain of 22 percent in Japan's benchmark Topix Index. The rose 1 percent yesterday in Tokyo trading to ?102.

Sumitomo Metal, which lost money in three out of five years to March because excess capacity kept steel prices low, in May agreed to sell a one-third stake to China Steel after it spun off part of its Wakayama plant.

Sumitomo Metal retained a 62 percent stake and trading company Sumitomo Corp owns the rest.

China Steel, which gets about 30 percent of its sales from overseas, last year produced 9.3 million tons of steel, more than its official capacity of 7.7 million tons, according to a report by Merrill Lynch & Co.

China Steel last week said third-quarter profit jumped 88 percent to NT$9.44 billion on rising sales to China, its largest export market. Demand for steel in China is boosting imports of steel used in automobiles and construction.

The unit expects sales of ?100 billion in its first year. Tanakamaru declined to give profit estimates.