Mittal in talks to buy into Chinese steel maker

2005-01-14

Mittal Steel, set to become the world's top producer via a multi-billion dollar merger, is in talks to buy into a unit of China's eighth-largest steel firm and gain a foothold in the world's biggest market. Mittal is negotiating to buy shares in Hunan Valin Iron & Steel Group's listed unit, the mainland firm said on Wednesday. The approach appears to fit the Mittal family's investment pattern of buying relatively cheap steel assets and using reverse takeovers to build firms. If completed, Mittal would enter China, the world's number one steel producer and consumer, as global steel demand is slowing. "Foreign firms are still interested in entering China because they are looking at the size of China's market," said Wang Qianming, an analyst at China Southern Securities. The International Iron and Steel Institute expects growth in global steel demand to slow to four to five per cent this year from 7 percent in 2004. "Our parent is in talks with Mittal Steel to sell some institutional shares our company to the global steel giant,"Hunan Valin Steel Tube & Wire Co. Ltd. said in a statement on the Shenzhen exchange's Web site. Valin Group general manager Sun Xiantong declined further comment, saying it was too early to release details. Mittal confirmed it was talking to Valin, but declined to give any further details. "There can be no assurances that any transaction will result from these discussions," mittal said in a statement, adding it would not comment further until "developments warrant.". LARGEST STEEL MARKET Mittal is set to overtake Europe's Arcelor as the world's number one steel producer after magnate Lakshmi Mittal combined his LNM Holdings and Ispat International NV and agreed to buy International Steel Co of the United States. The Valin Group -- known as Hualing in Chinese -- has total assets of $1.14 billion, with annual capacity of 2.7 million tonne of crude steel and 2.26 million tonnes of steel products. In November, Valin Tube & Wire completed a reverse takeover with Valin group subsidiary Xiangtan Steel, in what Sun called "a restructuring to move our company forward". "Chinese demand may be slowing, but it's not stopping. There's a lag because of already committed investments," China Southern Securities' Wang said. Chinese crude steel production is projected to grow by 30 million tonne in 2005, compared with growth of 50 million tonne last year, according to Xu Aihua, analyst at Antaike, China's leading metals analysis firm. In 2004, China produced 260 million tonne of steel, and consumed 276 million tonnes, according to estimates by the China Iron and Steel Association. Mittal Steel's sales of steel products to China exceeded 2 million tonne in 2004, the official Securities Times said. The Mittal family has representative or sales offices in Beijing, Guangzhou, Chengdu and Urumqi. Mittal planned to build a $100 million steel project in China's northeastern city of Yingkou, the Securities Times said, without giving further details. Valin Tube & Wire's Shenzhen-listed A shares, open to select foreign investors, rose 3.1 percent to 4.62 yuan on Tuesday, outperforming the broad market, amid talk of a possible Mittal buy-in. The shares were unchanged on Wednesday.