November 11, 2012 / 9:18 AM / in 8 years

Wuhan Steel shelves plans to build Brazil mill

BEIJING (Reuters) - Wuhan Iron and Steel Group, China’s fourth-largest steel producer, has shelved plans to build a steel mill in Brazil after negotiations on infrastructure investment floundered, the company’s head Deng Qilin said on Sunday.

Speaking to Reuters on the sidelines of the Communist Party Congress, he said the company’s Brazilian partners had failed to provide the necessary conditions for Wuhan Iron and Steel, also known as Wugang, to invest.

“Railways, port terminals — they haven’t built anything. The market also isn’t there, so now we have stopped the talks and for the moment we aren’t thinking about it,” he said.

The Brazilian partners, LLX Logistica SA LLXL3.SA, said last week that talks on the 5-million metric ton-per-year (5.5 million tons) steel project at the port of Açu were now “dormant” and that the two sides had not met for months.

Given the difficulties still facing the global steel sector, Wugang would no longer consider any other overseas steel mill investments, with the market already too crowded and profits too low, Deng said.

Deng said Wugang was still looking at potential acquisitions of overseas iron ore or coking coal mines. The company still plans to control overseas iron ore production assets with an annual production capacity of 60 million metric tons.

Its current overseas holdings produce 10 million metric tons a year, and the 60 million-metric ton target would take more than five years to achieve, he said.

The decision not to build overseas comes as China’s steel sector grapples with severe overcapacity and debt, particularly at its largest state-owned mills.

According to estimates by the China Iron and Steel Association, which represents top producers, total steel capacity will reach 900 million metric tons by the end of the year, about 200 million metric tons higher than crude steel output.

“This is the hardest year in history for the Chinese steel sector because the whole world economy has weakened and Chinese growth has slowed and is undergoing restructuring,” he said.

He noted the situation would have been even graver had the government not taken measures to consolidate the sector and eliminate outdated production capacity, but he estimated the sector’s troubles would last at least another two years.

He forecast national crude steel output would rise by 5 percent in 2012, and by less than that in 2013, as the pace of expansion slows and lackluster demand forces mills to run at less than full capacity.

Reporting by David Stanway and David Lin; Editing by Ron Popeski

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