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Arcelor seeks heavy steel base in China

Written by: Staff

SHANGHAI, Feb 23: Arcelor's planned investment in Chinese steel firm Laiwu will give it a local base to make the specialty steel used in skyscrapers that are sprouting up nationwide, a senior executive said on Thursday.

The world's number-two steel maker, battling an 18.6 billion euro ( billion) takeover bid by top-ranked Mittal Steel, is also interested in developing other projects in China, Senior Executive Vice President Roland Junck told Reuters, without elaborating.

''Look at the World Financial Center. You'll find our heavy sections, which are produced in Luxembourg,'' he said in an interview in Shanghai, referring to a 101-storey building that will be China's tallest when completed. ''It makes more sense in the future if you are able to produce it locally.'' The Shandong provincial government has initially approved Arcelor's purchase of 38.41 per cent of Laiwu Steel Corp. Ltd.

The deal, which Chinese sources value at 2 billion yuan (8 million), will be signed on Friday, but still requires Beijing's approval.

Laiwu is China's second-largest maker of H beams -- heavy steel beams used for structural support -- and is capable of producing 3.3 million tonnes a year, about a third of the company's total steel output last year.

Junck, who flew into town en route for Friday's signing ceremony in Shandong province, did not elaborate on the shareholding, price or timetable for the Laiwu deal. The exact size and price of Arcelor's stake depends on central government approval.

Beijing last year defined a steel policy which in principle blocks foreign companies from controlling Chinese mills. It also seeks to rein in the rapid expansion of China's steel capacity, while encouraging investment in more modern plants.

The agreement would give Arcelor half the state-owned parent's interest in listed Laiwu Steel, but the state will retain control through a 1.19 per cent stake held by a provincial investment body, sources have said.

Beijing only approved Mittal's stake in Hunan Valin Steel Tube and Wire after it was trimmed to leave the state-owned parent with clear control, despite the companies' original agreement to split control.


Sources have said Laiwu and Arcelor ultimately plan to build a new steel plant in coastal Shandong, but Junck declined to confirm that.

''One of the needs in China is to restructure and close obsolete capacity. That's the first thing you need to do. And then, to replace that capacity with new capacity,'' he said.

Arcelor originally entered talks with another Shandong steel maker with a view to supplying an existing joint venture steel wire plant, Junck said.

''We felt very comfortable in that province. So it was quite logical that we were approached by Laiwu on the subject of one of our specialties, heavy beams,'' he said.

Arcelor's steel sheet piling is being used to build new drydocks near Shanghai.

''We have been selling these products in China for many years, now it is important to produce them here,'' Junck said.

''This is not to say we will reduce our activities in Europe ...

It's not just the substitution of one market or one production asset for another, but it is mainly participating in market growth.'' Arcelor already owns 12 per cent of an automotive steel venture in Shanghai with top Chinese steel maker Baosteel Group and Japan's Nippon Steel Corp.

An automotive steel development partnership with Nippon has been fruitful, Junck said, declining to comment on whether Arcelor planned closer cooperation with its Asian partners.


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