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Sumitomo Metal Industries Ltd. said Wednesday that it and French partner Vallourec have agreed to strengthen their alliance in Brazil and China for threading and the production of seamless steel pipes as demand grows in line with oil and natural gas development.

Sumitomo Metal and Vallourec will set up a joint venture in Brazil to produce high-grade seamless pipes, while Sumitomo Metal and trading house Sumitomo Corp. will invest in a seamless pipe threading subsidiary in China established by the French company.

In Brazil, Sumitomo Metal and Vallourec, along with Sumitomo Corp., will invest a combined 200 billion yen to establish the joint venture, which will build an integrated steel plant, including blast furnace and seamless pipe milling facilities, Sumitomo Metal said.

The plant in Minas Gerais will have a capacity of 600,000 tons of seamless pipes a year when it starts up in 2010, with Sumitomo Metal and Vallourec each selling 300,000 tons, the steelmaker said.

The plant will also have the capacity to produce 1 million tons of crude steel annually.

“Backed by strong world energy demand, the market for seamless pipes used for oil and natural gas development has been growing in recent years,” Sumitomo Metal said. “In particular, the market for high-grade seamless pipes, which are durable even in severe drilling environments, is expected to expand at a remarkable pace.”

Sumitomo Metal and Vallourec, which have been working together since 1976 on premium joints for seamless pipes, chose Brazil as the location for the new joint venture because the country has good access to growing markets, including North America, the Middle East and Africa, and because raw material and energy costs are low in Brazil, it said.

In China, Sumitomo Metal and Sumitomo Corp. will take a combined 49 percent stake, or 34 percent and 15 percent, respectively, in VAM (Changzhou) Oil and Gas Premium Equipments Co. in Jiangsu Province, with the remaining 51 percent held by the French company, the Japanese companies said.

The Japanese steelmaker and trading house are hopeful the deal with the French firm, one of the world’s major producers of steel tubes, will expedite their ongoing push to sell high-end seamless pipes in China, where demand for pipes and joints is growing thanks to active oil and gas development activities.

The subsidiary, due to begin operations around this August to perform threading for joints, will be capable of processing 50,000 tons of joints per year. Premium joints for seamless pipes jointly developed by Sumitomo Metal and Vallourec control the largest share of the global market for the products.

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