Korean steelmaker, POSCO (PKX) in collaboration with the National Pension Service (NPS) and Japanese steel makers, Nippon Steel Corp and JFE Steel, entered into an agreement to acquire a 15% stake in Companhia Brasileira de Metalurgia e Mineracao (CBMM).
Companhia Brasileira de Metalurgia e Mineracao is the world’s largest Brazilian niobium company with roughly 800 million tons of niobium reserves. This rare metal is used for the production of high-grade steel products, especially catering to the needs of the automobiles, infrastructure construction, and oil pipeline industries.
As per the agreement, approximately 5% of the investment will be made by POSCO and the National Pension Service, while the rest 10% by NSC, JFE Steel, JOGMEC, and the general trading company Sojitz.
POSCO, over time, has been focused on regional diversification, self-sufficiency in raw materials and higher proportion of value-added products in its product mix. Recently, the company’s much awaited $12 billion Orissa project, involving an integrated steel plant with 12 billion tons of annual capacity and a port in Orissa, received conditional approval.
For fiscal year 2011, POSCO expects consolidated revenue of around KRW 66 trillion while POSCO’s revenue is targeted to reach KRW 36 trillion. It is anticipated that product sales would amount to a total 34 of million tons and crude steel production to 36 million tons. Consolidated investments are likely to be approximately KRW 9.8 trillion with the company’s investments totaling KRW 7.3 trillion. The company targets to save costs amounting to KRW 800 billion.
However, rising competition and higher raw material costs remain the prime causes of concern. The company faces stiff competition from Arcelor Mittal (MT) and Nippon Steel Corp.
We currently maintain a Neutral recommendation on the stock.
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