Japan's JFE Holdings Inc. agreed to join a blast furnace joint venture between South Korean peer Dongkuk and Brazilian miner Vale.
Japanese steelmakers are struggling to bolster capacity as demand from car and shipbuilding industries is booming, while the world's top maker, ArcelorMittal is aggressively expanding capacity, making them vulnerable to takeovers.
JFE, the world's third-largest steel maker, said the three would start a feasibility study on constructing blast furnaces and a plant capable of producing 5-6 million tonnes a year of steel slab in Brazil's northeastern Ceara state.
The second-biggest steelmaker in Japan plans to make the operation a consolidated unit if the firms decide to go ahead with the 500-600 billion yen ($4.9-5.9 billion) project, JFE said.
Dongkuk, which makes steel products such as plates and bars from imported raw materials and has no experience in blast furnace technology, said in November it would build a $2 billion steel plant in Ceara.
"JFE agreed to take a leading role in building and operating the plant after reviewing feasibility of the project," Dongkuk said in a filing to Korea's stock exchange on Tuesday.
JFE owns 15 percent of Dongkuk.
Dongkuk said the deal would double the annual production capacity of the plant from its original forecast of 2.5-3 million tonnes and improve production efficiency by helping it secure a stable raw material supply source.
Steel makers worldwide are competing for mining assets as fast growing prices of raw materials such as iron ore and coking coal increase cost pressures.
Already three big groups, Japan's Nippon Steel Corp, China's Baosteel Group Inc and ArcelorMittal, have announced capacity expansion plans in Brazil, which enjoys abundant steel supplies and proximity to the U.S. market.
"Now that the fourth group has started a feasibility study, a possible production glut in the early 2010s is a concern," said Takashi Murata, analyst at Daiwa Institute of Research.
JFE denied the concern, saying products would be sold to JFE's joint venture in California and affiliates and clients in Asia.
Nippon Steel, the world's second-biggest, in August unveiled a $9.8 billion investment plan at its Brazilian affiliate Usiminas. The new plants will start operating in the early 2010s.
JFE's main business is steel production, although it also engages in engineering, construction, logistics, and chemicals. The company also operates several overseas subsidiaries, including California Steel in the United States, Fujian Sino-Japan Metal in China, and Minas da Serra Geral in Brazil.
JFE Holdings Inc. is headquartered in Tokyo, Japan.
Dongkuk Steel Mill Co Ltd. is a steel company with its headquarters in the city of Seoul, South Korea. Its manufacturing plants are located in Pohang,Incheon and Busan. Dongkuk Steel is the parent company of the Dongkuk Steel Group with several subsidiaries including Union Steel. Dongkuk Steel Mill is the second largest EAF steel producer in Korea behind Hyundai Steel. Also Dongkuk Steel mill is world ninty first large steel maker as a member of IISI. The current chairman is Mr. Sae Joo Chang. The company is a member of the Dongkuk Steel Group.
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