Brazilian iron ore producer Companhia Vale do Rio Doce (CVRD) said yesterday it has begun building an iron ore pelletizing plant in China with two local steel mills.

 

The Zhuhai plant in South China's Guangdong Province is CVRD's first capital investment in the iron ore business in China, the world's biggest importer of the raw material for steel production, the group said in a statement.

 

CVRD invested US$4 million in the plant to give it a 25-per-cent stake, the statement said.

 

Two Chinese steelmakers Zhuhai Yueyufeng Iron & Steel Co and Pioneer Iron & Steel Group respectively control 40 percent and 25 percent shares in the plant.

 

The plant will be operational by the end of next year with an annual capacity of 1.2 million tons, CVRD said.

 

As one of the top three global iron ore providers, CVRD will supply at least 70 percent of the iron ore used to feed the plant through a 30-year contract, it said.

 

China's iron ore imports have been growing rapidly in recent years to meet strong demand boosted by swelling steel production, despite price hikes in the international iron ore market.

 

The nation imported 161 million tons of iron ore in the first half of this year, surging 23 percent year-on-year, according to industry data.

 

The China Iron & Steel Association predicted earlier this year that the country's 2006 iron ore imports would exceed 300 million tons, up from 275 million tons last year.

 

In the first half of this year, CVRD and the other two global iron ore suppliers Australia's BHP Billiton and Rio Tinto raised iron ore prices by 19 percent. The move followed a price surge of 71.5 percent last year.

 

Skyrocketing iron ore prices have put great pressure on steel mills in China, the world's No 1 steel-producing country.

 

Profits of China's top 83 steel companies plunged 30.4 percent to 35.3 billion yuan (US$4.5 billion) in the first half of this year, due partly to iron ore price increases.

 

Talks on iron ore prices for 2007 will start next month between Chinese steelmakers and international suppliers, according to industry sources.

 

Industry officials and analysts from China stressed that there are "no major market forces" to support further price increases.

 

They predicted China's iron ore imports would slow down next year as a result of excessive domestic production of the material and decelerating steel output.

 

They also said steel companies from China should have a "stronger say" in the upcoming negotiations on iron ore prices.

 

In the first half of this year, iron ore production in China jumped 35 percent to 245.6 million tons on the back of increased investment by domestic miners.

 

Full-year production is forecast to reach 528 million tons, up from 410 million tons last year.

 

China's crude steel output rose 18.26 percent to 199.5 million tons from January to June this year.

 

(China Daily October 24, 2006)