Agreement expected to expand purchasing, distribution channels

Tangshan Iron and Steel Group Co, or Tangsteel, has acquired a 10 percent stake in Switzerland's Duferco International Trade Holding, the world's biggest steel trader, in a move to further expand its overseas market.

The two companies also signed a steel products structural payment agreement worth $1.2 billion, which will help the Chinese steel producer to sell its products abroad.

"After acquiring the shares in Duferco, Tangsteel will have more purchasing channels for raw materials besides the three international iron ore giants, and our global markets will be further diversified," said Yu Yong, president of Tangsteel.

He added that the cooperation will help provide Tangsteel with better financial services and access to resources.

Over the past year, Duferco's steel trade volume was more than 16 million metric tons, approximately equal to the total output of Heibei Iron and Steel Group, China's largest steel company.

Through its distribution channels, steel products were sold to 28,000 end customers in European, North American and South American markets.

Matthew De Morgan, Duferco's chief executive officer, said: "We will help Tangsteel improve its technology and introduce its steel products to other international markets besides Asia.

"It is the first time that a Chinese steelmaker has invested in our company. Duferco has long held the belief that our long-term future lies firmly alongside the developing economies."

The two companies started cooperation in 2009, when Tangsteel exported 67,000 tons of steel products to Duferco, and that had grown to 1 million tons last year.

Over the past year, the Chinese steel industry has been suffering from overcapacity and rising raw material costs.

As a result, some steel producers such as Tangsteel have been increasing their efforts at exploring overseas markets.

Yu predicted that Tangsteel will export 3 million tons of steel products this year and 4 million tons in 2014.

"By the end of 2015, Tangsteel will reach a stable annual export volume of 5 million tons," he added.

China's steel industry has seen a gradual increase in demand since the start of the year.

According to figures from the China Iron and Steel Association, the country's major steel companies realized total sales of 300.29 billion yuan ($47.74 billion) in January, up 16 percent year-on-year.

The 86 steel producers considered large and medium-sized realized overall profits of about 1.34 billion yuan in the month.

However, a source from the association said about a third of Chinese steel producers are still in deficit. Of those 86, 26 companies are loss-making and collectively lost 2.08 billion yuan.

According to Wind Information Co, the leading provider of financial research, nine steel companies listed in Shanghai and Shenzhen have published their annual reports, which showed total revenue of 354 billion yuan in 2012, a 9 percent fall year-on-year.

Last month, the vice-president of the association, Zhu Jimin, said, "Chinese steel company profits are being severely affected by falling steel product prices and high costs for coking coal and iron ore."

dujuan@chinadaily.com.cn