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New partnerships stir competition in Brazil steel market

Brazil's steel sector has been shaken up since mining giant Vale SA started building its first steel mill, bringing in new foreign partners and triggering a bitter fight over manpower and customers.

The squabbling among local steelmakers is likely to intensify as Vale plans to build another three major steel mills with new partners, including South Korea's POSCO and Dongkuk Steel Mill Co.

The new plants are being developed by Vale following government criticism that it wasn't doing enough to boost the development of Brazilian industry, and to enlarge the local market for iron ore, of which Vale is the world's biggest exporter.

Vale and its partners plan to invest about USD 22 billion in the four mills, increasing Brazil's steel production capacity by 40% from the current 47 million tonnes per year, which is already double local demand.

Vale's projects are intended to focus on slab sales to partners overseas, but analysts said that the new works will still raise competition at home.

Mr Max Bueno of Spinelli Corretora said that “The rationale's the same. They'll certainly boost competition and put added pressure on prices as they increase steel supplies. There's already a high surplus of steel capacity world wide."

According to the Brussels-based World Steel Association, global steelmaking overcapacity stands at 532 million metric tons, equivalent to one third of world demand.

In Brazil, steelmakers including Companhia Siderurgica Nacional SA or CSN, Usinas Siderurgicas de Minas Gerais SA or Usiminas, ArcelorMittal Brasil and Gerdau SA have had limited success raising prices this year as they compete with imports from an oversupplied world market.

Last year, CSN quit the ranks of the prestigious Brazilian Steel Institute, or IABr, aggrieved according to people familiar with the company because it felt the first of Vale's new joint ventures Companhia Siderurgica do Atlantico or CSA, in Rio de Janeiro state had poached CSN employees to man its new steelworks.

Sourced from Dow Jones Newswires

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