Wuhan talks to build Brazil steel mill "dormant": LLX

RIO DE JANEIRO Thu Nov 8, 2012 4:16pm EST

RIO DE JANEIRO (Reuters) - Talks between China's Wuhan Iron & Steel Co Ltd (600005.SS) and Brazil's LLX Logistica SA LLXL3.SA on the construction of a 5-million-tonne-a-year steel mill at the Brazilian port of Açu are "dormant," the port's owner told Reuters on Thursday.

Wisco, as China's No. 4 steelmaker is known, and Brazilian port operator LLX have not met in months, said Filipe Mello, LLX's investor relations director. Wisco's name has also been removed from plans for the port included in LLX presentations to investors.

LLX, controlled by Brazilian billionaire Eike Batista, is part of Batista's Rio de Janeiro-based EBX mining, oil, electrical power, shipbuilding, port, and ship-leasing group.

The $5 billion Wisco mill, originally planned to open in 2012, was to have been the largest-ever Chinese investment in Brazil. It was to be a key part of an industrial development plan at the Port of Açu, about 320 kilometers (200 miles) north of Rio de Janeiro, that includes an iron ore export terminal, a shipyard, power generation plants and railway access.

"Wisco has never told us they have canceled plans to build the mill and have denied rumors of pulling out before," Mello said. "We haven't talked recently, though, and at one time we were meeting on a daily basis to plan."

LLX removed Wisco's name from its presentations because they now have a policy of only including the names of companies that have signed contracts to build at the port site, Mello said.

LLX and Wisco's agreement was merely a memorandum of understanding, he added.

Wisco officials in China could not be reached outside of normal business hours.

RAIL-LINK CONCERN

Wisco did have some concerns about the suitability of building at the Açu site, Mello said. While Anglo American Plc (AAL.L) will ship iron ore from its Minas Gerais mining project through Açu, Wisco wanted to get its ore from Batista's MMX Mineração e Metalicos SA. Wisco owns 16 percent of MMX.

Getting ore from MMX mines requires the rebuilding of a 300-kilometer (186-mile) rail line liking Açu with MMX's iron ore terminal southeast of Rio de Janeiro.

The line, which is expected to be put out to tender next year by Brazil's federal government, is not expected to be ready until at least 2015, Mello said.

LLX had hoped the mill would be one of two steelmaking plants at Açu.

LLX is holding final talks with Ternium SA (TX.N), part of the Italo-Argentine Techint steelmaking group, to build another mill at Açu. Ternium will get its iron ore from Anglo American Plc, which is building an iron ore slurry pipeline from its mine in Minas Gerais to Açu.

Doubts about the future of Wisco's Brazilian mill come after a series of high-profile Brazilian steel projects have been abandoned, delayed or put up for sale.

ThyssenKrupp AG (TKAG.DE) put its 73 percent stake in the 5.3 billion euro ($6.73 billion) Companhia Siderurgica do Atlantico (CSA) mill in Rio de Janeiro up for sale earlier this year.

Vale SA (VALE5.SA), ThyssenKrupp's partner at CSA, has stopped preparations to build a mill in Marabá, Brazil, after the government backed out of plans to upgrade river transport needed to supply the mill and get its products to market.

In 2003, one of China's largest steelmakers, Baosteel Group, began talks with Vale to jointly build a steel plant. Although they reached an agreement in 2007 to build the plant in Brazil's Espirito Santo state, the deal was later canceled due to the global financial crisis.

In July, the 21st Century Business Herald, a Chinese newspaper, reported Wuhan had pulled out of building the Açu mill because of problems with rail and other transport systems for coking coal and other raw materials.

The paper did not name its sources. Wuhan and LLX officials at the time denied the report.

LLX rose 2.5 percent to 2.44 reais in Sao Paulo trading on Thursday.

($1 = 0.7844 euros)

($1 = 2.03 Brazilian reais)

(Reporting by Jeb Blount; Editing by Todd Benson; and Peter Galloway)

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