China's Baosteel, Minmetals turn to Kyrgyzstan for coal - sources

Tue Mar 4, 2014 12:26am EST

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* Baosteel, Minmetals to sign MoUs with Australia's Celsius Coal for supply

* Celsius's coal mine in Kyrgyzstan can start producing in 2-3 yrs

By James Regan

SYDNEY, March 4 (Reuters) - China's Baoshan Iron & Steel (Baosteel) and Minmetals Development are near deals to buy at least half a million tonnes of coal a year from an Australian firm operating in Kyrgyzstan, sources said.

The bid by the industrial conglomerates to get coal from China's western neighbour comes amid efforts to curb the burning of the resource in and around the capital Beijing, where air quality has left the city shrouded in a noxious haze at times.

Baosteel, China's largest steel producer, intends to ship its share of the coal to its Bayi Steel works in Xinjiang province, a source close to the deal talks told Reuters on Tuesday. The region is on the western edge of northern China, bordering Kyrgyzstan and about 4,000 kilometres (2,500 miles) from Beijing.

The non-binding agreements are to be signed with Australia-listed Celsius Coal Ltd which is developing a metallurgical coal mine in the Central Asian country that could be in production in two or three years.

"We should see these non-binding MoUs (memorandums of understanding) signed by the end of this week," another source close to the talks said. Baosteel and Minmetals did not immediately respond to requests for comments.

The agreements would see Baosteel and Minmetals split 50-50 an estimated 500,000-600,000 tonnes of coal mined annually.

Xinjiang has been earmarked for policy-led economic growth initiatives by Beijing, including building of new roads and other infrastructure to encourage economic development.

China will boost development in ethnic minority areas and spur their industrialisation, a senior Communist Party official said on Monday, in implicit recognition of the economic causes of some unrest in areas like Xinjiang.

The comments by Yu Zhengsheng, the fourth most senior ruling party member came as China reeled from a deadly attack on a train station blamed on militants from Xinjiang.

Under China's current Five-Year Plan, steel output in Xinjiang is earmarked to climb to 23 million tonnes a year in 2015, with 7 million tonnes new capacity added in 2013 alone.

Baosteel, which acquired the Bayi Steel works in 2007, has said it wants to become the primary supplier of steel in the west region of China.

To do that, it will need coking coal for steelmaking, which is in short supply in Xinjiang, where all coal but about 2 percent is of thermal grades used to generate electricity.

As a result, coking coal in Xinjiang typically sells at a premium to other markets. (Additional reporting by Fayen Wong in SHANGHAI; Editing by Muralikumar Anantharaman)

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