Sponsored Link:

Monday, June 23rd, 2008

Faced with Skyrocketing Iron Ore Costs, China’s Baosteel Rolls Two Rivals into a Joint Venture

By Mike Caggeso
Associate Editor

Baosteel Group Corp., China’s largest steel producer, will pay $4.2 billion in cash for an 80% stake in a new Guangzhou-based steel mill that will merge two rivals, Shaoguan Iron & Steel Group and Guangzhou Iron & Steel Group.

China is already the world’s top steel consumer and producer, churning out one-third of the global supply. This newly formed company, Guangdong Iron & Steel Group Corp., will boost Baosteel’s capacity by 33% to 40 million tons.

Specifically, it will help supply steel-hungry Toyota Motor Corp. (ADR: TM) and Honda Motor Co. (ADR: HMC), both of which have plants in the city of Guangzhou.

Baosteel also wants to build a new 10 million ton-capacity mill in Zhanjiang, Reuters reported.

Story continues below…

Sign up right now, and we’ll send you an important new report for free: “The Three Best Investments in Asia.”




Baosteel is making a fervent effort to squash local competitors and streamline operations - now more than ever - because it’s facing skyrocketing costs of iron ore, the key ingredient used in steel production.

The day it announced the merger, it also agreed to pay Australia-based Rio Tinto PLC (ADR: RTP) an average of 85% more for iron ore this year, Australia’s The Age reported. The price increase is a result of fierce demand for iron ore, but also because Rio Tinto and Aussie rival BHP Billiton Ltd. (ADR: BHP) have significantly lower shipping costs than Brazil-based rival, Vale (RIO), the world’s largest iron ore exporter, which allows them to charge a premium. 

According to Bloomberg data, shipping iron ore from Australia costs about $55 a metric ton less than from Brazil. But China doesn’t have much of a choice, as its economy is growing at a 10% annual clip.

And that extra coin Rio Tinto and BHP have pocketed is dually driving up global prices and testing China’s patience.

It’s also playing a huge role in Australia’s commodity-exporting industry, which may earn 12% more than forecast for March and a record $203 billion for the year, Bloomberg reported.

“The consistent story here is that producers haven’t been able to match the ever-growing demand from China,” Gerard Burg, an energy and minerals economist with National Australia Bank Ltd. (OTC ADR: NABZY), told Bloomberg. “China’s demand is still going and still very strong.”

News and Related Story Links:

Mathematical Concept Used by Gov’t Code Breakers Can Predict the Market’s Movement...

The CIA uses it to crack codes. The government uses it for technological superiority. The B-2 bomber couldn’t fly without it. And for those that know how, it can be used to “speak the language” of the market.

But cutting through the “noise” and seeing through to the underlying hidden order of the markets, this strategy can be used to predict the movement of any investment - to the penny - with 95% accuracy.

And now for the first time, this strategy is being offered to a few investors as a reliable, emotion free guide to avoiding losses and making big money in these turbulent markets. See if you qualify, here.




This entry was posted on Monday, June 23rd, 2008 at 5:51 pm and is filed under China, Top News. You can follow any responses to this entry through the RSS 2.0 feed. Due to the amount of comments we receive Money Morning will not be able to respond to all questions. If you have not already registered to leave a comment, once doing so you will receive Money Morning's Daily Email. Responses are currently closed, but you can trackback from your own site.