Hunan Valin Steel Group Co has agreed to form a US$948-million joint venture with the world's top mill, ArcelorMittal, in China to produce silicon electrical steel, used in the power sector.

Meanwhile, Valin's listed unit said it would invest in Australian iron ore firm Golden West Resources Ltd to secure raw material supply.

The new 50-50 joint venture needs total investment of 6.5 billion yuan (US$948 million) and will start in 2010. The venture will compete with Wuhan Iron & Steel Co and Baosteel Group Co in the field of electrical steel that can be used in transformers, electric motors and generators.

It is capable of producing annually 400,000 tons of non-grain oriented and 200,000 tons of grain oriented steel, two main types of electrical steel, ArcelorMittal said, adding it will transfer its latest technologies to the venture. This is another example of ArcelorMittal working with Valin to expand in China's steel market, while facing setbacks in direct stake purchases in other Chinese mills.

ArcelorMittal, based in Luxembourg, recently agreed with Valin and its listed unit Hunan Valin Steel Tube & Wire Co, to build a plant for automotive steel products. Valin Steel Tube, based in Changsha, Hunan Province, is part owned by ArcelorMittal.

"It's clear Valin's strategy is to use the technology supports from the venture partners to boost its profitability," Sinolink Securities analyst Zhou Tao said in a report, adding their next cooperation may be in the stainless steel sector. Valin Steel Tube will provide 600,000 tons of hot-rolled sheets a year to supply the new venture. The listed arm didn't have a stake in the latest JV mainly due to concerns on risk and capital, Zhou said.

Meanwhile, listed Valin will buy 14.4 million new shares, or 11.4 percent of enlarged share base, in Golden West for A$26.6 million (US$23.4 million) in a private placement.

They also agreed that the Australian firm, still in exploration stage, would supply up to 4.5 million tons of iron ore a year to Valin over 15 years when production started.

(Shanghai Daily August 14, 2008)