China Steel Corp (CSC, 中鋼) yesterday announced that the company has acquired a 3.68 percent stake in ArcelorMittal Mines Canada Inc’s (AMMC) iron ore mining and in its infrastructure assets, securing an annual supply of 1 million tonnes of iron ore pellets, the main raw material used in steel-making.
If the US$270 million deal is approved by the government, CSC’s percentage of self-sustained raw materials would increase from 4.2 percent to 11.6 percent, the company said in a press release.
“The investment is part of our plan to increase our percentage of self-sustained raw materials to 30 percent by 2015,” Steve Lee (李慶超), spokesman and a vice president of CSC’s administration division, said by telephone.
Lee said the reason the investments was because iron mining companies enjoy higher prices for their products and generate significant profits, while current steel prices remain low.
As a result, investing in iron-mining companies could help improve CSC’s bottom line, he said.
From January through November last year, the Greater Kaohsiung-based company posted a pretax profit of NT$5.3 billion (US$182.2 million), down 78.25 percent year-on-year, while its revenue dropped 13.56 percent to NT$191.95 billion, data show.
Lee did not elaborate how much CSC’s profit is likely to increase as a result of the new investment. However, he said the plan could minimize uncertainty in acquiring raw materials for the company, which will use the deal to enter into a long-term iron ore supply agreement with ArcelorMittal.
Lee said that CSC’s investments in AMMC’s iron ore mining and infrastructure assets will not affect its raw material costs because CSC would purchase raw materials from AMMC at market prices.
The US$270 million deal was made via a US$1.1 billion joint bid between CSC and South Korea’s Pohang Iron and Steel Co (POSCO), the world’s fourth-largest steel producer, to obtain a 15 percent stake in the Canadian firm’s assets.
The deal was inked as ArcelorMittal, the world’s largest steelmaker and the owner of AMMC, has been suffering from declining profits amid negative global macroeconomic conditions and is considering disposing of one its Canadian iron ore operations to help reduce its debt.
ArcelorMittal wrote down the value of its European business by US$4.3 billion last month, while its net debt rose by US$1.2 billion during the third quarter to US$23.2 billion at the end of September, according to its Web site.
Describing last year’s economic situation as “severe” for the global steel industry, Lee said CSC was no exception. However, he added that the company’s performance would improve in the first quarter of the year because the economy had already hit its lowest point in the fourth quarter of last year and would start recovering this year.
This is also the reason why the company decided to raise its domestic steel prices by 0.39 percent, or NT$82 per tonne on average, for this month’s and next month’s deliveries following a recovery in global demand, he said.
Shares in CSC ended 0.91 percent higher at NT$27.6 yesterday on the first trading session this year, following a decline of 5.03 percent for the whole of last year, Taiwan Stock Exchange data showed.