China's Wuhan Steel abandons plan to build Brazil mill-paper

SHANGHAI, July 3 Mon Jul 2, 2012 10:28pm EDT

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SHANGHAI, July 3 (Reuters) - China's Wuhan Iron & Steel Group, the country's fourth-largest steel producer, has abandoned plans to build a $5 billion steel plant in Brazil, after a series of feasibility studies found the project was too risky, the 21st Century Business Herald reported on Tuesday.

Citing two unidentified sources, the paper said issues surrounding logistics, transport and coking coal supplies were the key reasons behind Wuhan Iron's decision to abandon the project.

The mill, planned for Rio de Janeiro's Acu industrial zone, would also have required the construction of a 300 km (186 mile) rail line to transport raw materials to the plant.

"The cost of building such a long railway is very high and has driven up a huge portion of the overall project cost," the paper quoted one of the sources as saying.

Wuhan Iron had done repeated feasibility studies over the past three years but concluded each time that there were too many uncontrollable risks that could lead to a cost blow-out.

The proposed 5 million-tonnes per year plant, which would have been China's largest investment in Brazil and its biggest steel plant build overseas, had originally been scheduled to start production in 2012.

The planned project was a joint venture between Wuhan Iron and Brazil's EBX Group, with the Chinese group holding a 70 percent stake.

Steel mills in China, the world's largest steel producer, have been trying to expand their manufacturing operations overseas but their efforts have yielded little success.

In 2003, one of China's largest steelmakers, Baosteel Group, began talks with Brazilian iron ore producer Vale SA to jointly build a steel plant. Although they reached an agreement in 2007 to build the plant in southeastern Brazil, the deal was later cancelled due to the global financial crisis.

Other Chinese steel companies including Jinan Iron and Steel Group and Tangshan Iron and Steel Group have also failed in their ambitious overseas forays, according to local media reports. (Reporting by Fayen Wong; Editing by Richard Pullin)

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