FORTESCUE Metals Chinese shareholder Hunan Valin Steel plans to triple its capacity through mergers and capital investment and is eyeing a listing on the Hong Kong stockmarket to raise up to $1.68 billion.
The Chinese government last month began another push to consolidate the country's fractured steel industry, planning to create six or seven mega-groups with the aim of boosting its negotiating power with iron ore giants including miners Rio Tinto and BHP Billiton. While a top-10 steelmaker, Hunan Valin is considered second-tier.
It produces 10.8 million tonnes annually, compared with 30 million tonnes from the biggest mill owner, Baosteel, but is planning a push into the top echelon.
Hunan Valin chairman Li Xiaowei said in March that the company wanted to increase annual production capacity to 30 million tonnes.
The Hunan-based Xiaoxiang Morning Herald said Mr Li told a local government meeting last week that the steelmaker's parent company, Hunan Valin Iron & Steel Group, may seek to raise as much as 10 billion yuan in the float and use the proceeds to increase capacity.
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Mr Li said the company wanted to double its profit next year, forecasting steel production would hit 19 million tonnes.
"Valin's action comes as consolidation is encouraged by the government and everyone strives to be bigger," Beijing Lange Steel Information & Research Centre analyst Ma Li told The Australian.
"The market is seen as good and people are optimistic.
"Valin is a private company, which makes decisions more quickly."
The China Daily cited industry insiders as saying Valin's listing was designed to support capacity growth and overseas acquisitions.
As the next step in its acquisition program, Valin may want to buy Hunan Lengshuijiang Iron & Steel, a low-end construction steel producer, China Business News reported last week.
Hunan Valin Steel Co's shares jumped nearly 8 per cent on the mainland Shenzhen market a week ago following the news.
Valin was the first Chinese steelmaker to take a large stake in an Australian iron ore miner, paying $US1.27bn ($1.18bn) for a 17.4 per cent stake in Fortescue Metals Group at the start of 2009.
The move made it Fortescue's second-largest shareholder after founder Andrew Forrest and secured iron ore supplies for the group.
The purchase was followed by Wuhan Steel's $US247 million investment in Australian iron ore firm Centrex.
Later, Shanghai-based Baosteel acquired a 15 per cent stake in Aquila Resources, worth up to $4bn. Baosteel had spent 18 months in talks with Fortescue before discussions collapsed in 2008.
Hunan Valin Steel, the group's Shenzhen-listed unit, is partly owned by the world's largest steelmaker, ArcelorMittal.
Despite rising concerns in the Chinese government about overcapacity in China's steel sector, major steelmakers appear to be increasing their output.
Last week, Wuhan said it expected demand to rise 10 per cent this year, but would increase its own capacity by more than 20 per cent.
Discussions on iron ore pricing are due to begin soon.
Prices are expected to jump by 10-20 per cent over last year's agreed price with Japan and South Korea.
Talks between Chinese mills and major iron ore producers collapsed in 2009.