Japan's third biggest stock trading company, Sumitomo Corp. Thursday announced that its in a $1.9 billion bid investment for the acquisition of a 30% stake in Brazilian steel giant, Usiminas Siderurgicas de Minas SA unit. The Japanese company targets an expansion of the Brazilian flat steel manufacturer’s production capacity, by tripling its iron ore supply to cater for the burgeoning steel demand in China.

 

According to the company's spokesman, Koji Furui, Sumitomo will get about 3.1 million tonnes of iron ore annually, an increase from the existing 1 million tonnes. A statement from the Japanese company said it would purchase Mineracao Usiminas SA that owns iron ore mines and a railroad business, based in the Belo Horizonte state, Brazil. In 2009, Iron ore imports by China peaked at 42%, marking a record 628 million tonnes.

 

China is the world's leading consumer of iron ore products, whereas global consumption of steel is expected to exceed the 2007 record in 2010, with an 11% increase from 2009 as the world economy pulls through. According to pundits, the result will enable the domestic steel sector secure raw material supplies even with the escalating competition from China and South Korea.

 

As such, Sumitomo can expect a raise in profits from high iron ore prices and increase its steel products business. With the announcement, Sumitomo shares declined by 1.2% to 886 yen, its lowest fall since Dec 15^th last year. Usiminas, Brazil’s second-largest steelmaker, is seeking to gain from surging iron-ore prices through a stake sale and spinning off the unit, estimated by the company at about $6.43 billion.

 

Sumitomo’s Brazil investment comes in the wake of similar ventures by other Asian giants in Latin America in a bid to secure supplies of iron ore, a steel making key raw material. The Usiminas unit will control 83 percent of railroad operator Usiminas Participacao & Logistica SA.

 

The railroad business includes a 20 percent voting stake in MRS Logistica SA, a rail operator in southeastern Brazil. Vale SA and CSN also hold stakes in MRS. Mineracao Usiminas’ mine, located in the Serra Azul region in the state of Minas Gerais, produces 7 million tons of iron ore a year and has an estimated 2.4 billion dry metric tons in reserves, Sumitomo said. Usiminas will invest 4.1 billion reais ($2.3 billion) by 2015 to boost iron-ore output more than fourfold to 29 million tons, Chief Executive Officer Wilson Brumer said yesterday.

 

1 July 2010.