China Firm Yanks Brazil Investment

China’s Baosteel has pulled out of a Brazilian steel joint venture with Vale in the state of Espirito Santo. The up to $6bn project was a central part of Vale’s plan to boost domestic demand for iron ore and reduce dependency on Asian ore consumption, says an analyst at Banif Invest in Rio. Baosteel owns over 80% of the venture, called Companhia Siderurgica de Vitoria (CSV), with Vale holding the rest. The project had already run into issues in the second half of last year, with the companies having to relocate part of a steel plate furnace. Falling demand for steel, tight credit markets and an overall need to trim capex all contribute to the decision to pull out of the project, says the Banif analyst. “The global economic crisis, which affected the chain leading steelmakers worldwide to a strong reduction in steel production, as well as a change in scenarios for the CSV project, led Baosteel to propose the cancellation of the project and the liquidation of Companhia Siderurgica Vitoria,” says Vale. Vale shares closed up 2.7% Friday, but in the medium term, the move is seen as a negative, as it reduces the potential pool of domestic buyers for iron ore, and forces it to sell output on challenging overseas markets. State-owned Baosteel is one of the 10 biggest steel producers globally.