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