RPT-China steel firm buys 10 pct stake in Swiss steel trader Duferco

Wed Mar 27, 2013 8:23am EDT

* Tie-up should boost Tangsteel exports outside Asia-sources

* Duferco aims to increase steel trading volumes

* Ukraine steel producer already owns stake in DITH

By Silvia Antonioli

March 26 (Reuters) - Tangshan Steel, part of China's largest steelmaker Hebei Group, has bought a 10 percent stake in Swiss-based Duferco International Trading Holding, underlining China's efforts to export more steel as domestic overcapacity bites.

The deal, signed last week, gives Duferco the exclusive right to sell Tangshan's steel outside Asia, two market sources said.

Duferco International Trading Holding (DITH), a subsidiary of the privately-owned Duferco group, one the world's largest steel trading and producing firms, declined to comment on whether the steel marketing deal was exclusive.

"This deal will give us a substantial increase in volumes but moreover it will improve our product portfolio to give us a far broader spread of value added products," DITH Chief Executive Matthew De Morgan told Reuters in a phone interview on Tuesday From Switzerland.

Tangshan Steel (Tangsteel), which can make more than 18 million tonnes a year of steel, produces mainly flat steel products such as steel coils, used by the automotive and energy industries, and is trying to make higher value added products.

Tangsteel and Hebei, were not immediately available to comment on the deal.

Many steel producers and trading firms have suffered in the last year due to prolonged market weakness but De Morgan said DITH was "doing satisfactorily in very unsatisfactory market conditions."

DITH, he said, had grown its annual steel trading volumes to 8 million tonnes recently. That is up from 7.5 million tonnes in 2011 and 6.8 million in 2010, according to data posted on the company's website.

"It is another good deal for Bolfo," said a Swiss-based steel trader referring to Duferco's founder and owner Bruno Bolfo. "They get cash for the share and also get control of bigger steel volumes."

THE RED WAVE

Through the tie-up, the Hebei subsidiary will gain access to Duferco's large international network which should help the Chinese firm to boost its exports.

Many Chinese steelmakers have been trying more aggressively to export steel in the last year as overcapacity in the sector has dragged prices and margins down.

"Excess capacity in China is still very much a big problem and I don't see it disappearing anytime soon, not without effective consolidation," CRU steel analyst Chris Houlden said.

"The domestic Chinese market is so big that any small imbalance between supply and demand can have a big impact on the export market especially considering that the Chinese are quite happy to accept pretty low margins."

U.S. steel companies urged Congress and the White House last week to take action against what they said was a flood of unfairly traded steel from China.

Many Chinese steel mills have continued to increase production levels even if that puts downwards pressure on price.

"For some (state-owned) Chinese producers economic profit is not at the top of the list of priorities, maybe revenue is more important because it brings potential tax revenue or employment to the provinces," Houlden added.

RAW MATERIALS AGREEMENT

The Tangsteel deal with DITH also includes commercial agreements regarding the sourcing of steel raw materials for steelmaking and technical support.

"We will help Tangsteel sourcing raw materials from junior miners and diversify their supply portfolio," De Morgan said.

China has often complained about the excessive marketing power in the hands of the three large suppliers of iron ore and coking coal: Brazil's Vale and Australia's BHP Billiton and Rio Tinto .

Earlier this month China's top economic planning agency accused the big three global miners and some traders of manipulating the iron ore market to drive prices up.

Tangsteel is not the first producer to buy a share in DITH.

Ukraine's Industrial Union of Donbass (ISD), a steel producer with annual capacity of more than 10 million tonnes, already owns a stake in the company and also has a marketing agreement with Duferco.

DITH however says it doesn't see any conflict of interest in the participation of both steel mills.

"There is no conflict in the portfolio of the two companies: the product portfolio and geographic focus do not overlap," De Morgan said.

ISD focuses on production of semifinished steel products and long products used mainly for construction, and sells mainly to former Soviet states, Europe, Africa and the Middle East.

De Morgan also said he did not see the tie-up with Tangsteel creating any conflict of interest with other Chinese steel producers who supply DITH.

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