Vale partners with Posco in Brazil steel plant

Fri Jul 16, 2010 2:38pm EDT

* Vale to hold 50 pct stake, Dongkuk 30 pct, Posco 20 pct

* Formerly Vale held 60 pct, Dongkuk 40 pct in CSP

SAO PAULO July 16 (Reuters) – Iron ore miner Vale (VALE.N) (VALE5.SA) said on Friday it is teaming up with South Korea‘s largest steel company Posco as a partner in its joint steel plant project with Dongkuk, in the city of Pecem in Brazil’s northeast.

Vale has been under pressure from President Luiz Inacio Lula da Silva to create more jobs in Brazil by investing in steel projects, a business in which Vale said it did not want to be a majority stakeholder because it puts it in direct competition with its clients, steel mills.

Vale, which owns 60 percent, and South Korean steel maker Dongkuk (001230.KS) with 40 percent will transfer an equal 10 percent share in the Companhia Siderurgica do Pecem (CSP) joint venture, giving Posco (005490.KS) a 20 percent stake.

Although Vale has been aggressively diversifying its activities away from iron ore into other minerals such as copper, nickel and phosphates, it still sees its core business as iron mining, not steel making.

Analysts have attributed the lackluster performance of the company’s shares recently in part to the perception of increased government meddling in the company’s business plans. Vale shares were down 0.3 percent on Friday at 37.82 reais.

Vale has stepped up the publicizing of its investments in steel companies on TV, radio and in the papers in Brazil since Lula and his ministers started leaning on the company in 2008, soon after it dismissed several hundred workers during the dark days of the financial crisis.

The public statement by Vale about Posco’s entrance into the CSP project also included a rather lengthy list of all of its investments in the steel sector, including its CSA project with ThyssenKrupp, the Alpa steel slab project and its CSU project with Baosteel.

CSP is expected to require $4 billion in investments and be able to put out 3 million tonnes of steel slab a year for the export market in its first phase. In a second phase, it will produce 6 million tonnes annually.

Ground clearing for the plant in northeastern Brazil began in December, and production should begin in 2014. (Reporting by Reese Ewing; Editing by Alden Bentley)

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