Trading house Sumitomo Corp. said Thursday it will acquire a 30 percent stake in an iron ore mining subsidiary of major Brazilian steelmaker Usinas Siderurgicas de Minas Gerais S.A. for up to $1.93 billion.
The investment in Mineracao Usiminas S.A. would enable Sumitomo to secure 9 million tons of iron ore a year, equivalent to nearly 10 percent of Japan’s overall iron ore imports, and the trading house is expected to provide it to Nippon Steel Corp. and other domestic steelmakers, company officials said.
Sumitomo and the Brazil steelmaker, known as Usiminas, plan to ink accords on the deal by the end of August.
Negotiations to decide iron ore prices “are currently led by major (foreign) natural resources companies, but we hope to offer stable prices over the long term,” Sumitomo Senior Managing Executive Officer Kuniharu Nakamura told a news conference.
Sumitomo will buy new shares in Usiminas’ subsidiary through a private share allocation.
The subsidiary is an integrated mining company with iron ore mines, railway capacity and port facilities in the Serra Azul region in the state of Minas Gerais.
It currently has an annual production capacity of 7 million tons of iron ore and plans to raise capacity to 30 million tons by 2014 to 2015 through cooperation with Sumitomo.
Iron ore imports by China, the world’s biggest consumer, soared 42 percent last year to a record 628 million tons.
“(Sumitomo’s move) will help the domestic steel sector secure stable raw material supplies” amid increasing competition from China and South Korea, said Takashi Murata, an analyst at Daiwa Securities Capital Markets Co. in Tokyo. “Sumitomo can expect an increase in revenue from higher iron ore prices and expand its steel-products business.”
Usiminas, Brazil’s second-largest steelmaker, is seeking to profit from surging iron ore prices by selling a stake and spinning off the unit, which the company said may be worth $6.43 billion.
The investment may boost Sumitomo’s operating profit by between ¥10 billion to ¥20 billion a year by 2015, when an iron ore expansion project is completed, Nakamura said.
Sumitomo will likely supply “several million tons” of iron ore a year to Japanese steelmakers and will target shipments to China and India, Nakamura said. A Japanese group led by Nippon Steel Corp., the nation’s largest mill, has a 27.8 percent stake in Usiminas.
“Stable supplies to Japan and the world will lead to stability in management for the industries,” Nakamura said at a press conference.
Tokyo-based Sumitomo follows other Asian companies buying assets in South America to curb costs and secure supplies of iron ore, the main raw material used to make steel.
A group that included Posco and Nippon Steel acquired a 40 percent stake in a unit of Cia. Siderurgica Nacional SA, the Brazilian steelmaker known as CSN, for $3.12 billion. CSN also plans to sell shares in its iron ore unit.
JFE Holdings Inc., Japan’s second-largest steelmaker, plans to spend as much as ¥200 billion to invest in iron ore and coal mines in Australia and Brazil to double its raw material self-sufficiency, Eiji Hayashida, the president of the company’s steel unit, said in a May 7 interview.
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