China considers 'game changer'

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SHANGHAI — ArcelorMittal, the world's largest steelmaker, welcomed the potential removal of a near 10-year block on overseas takeovers in China's steel industry.

Luxemburg-based ArcelorMittal is one of the few foreign steel mills with investments in China since the ban on overseas control was imposed in 2005. The world's top producer and consumer is considering scrapping the ban, which might be a catalyst for global mills to revive a push into China's $423 billion steel sector where demand is seven times greater than in the U.S., the next-biggest market.

"It's good news that the government is moving forward on reforms and liberalization on foreign investment," Lakshmi Mittal, the billionaire chief executive officer of ArcelorMittal, said in an interview in Loudi, in China's Hunan province. "Whether we will like to invest more in this country or we will not, will depend on the future development of our various projects."

China's steel output may reach 1.1 billion metric tons in the next 10 years driven by urbanization, BHP Billiton Ltd., the world's biggest miner, said this month. That would be 41 percent more steel than it made last year. The Asian nation consumed about 700 million tons of the alloy last year, eclipsing the 95.6 million tons used in the U.S.

Automobile production in China, already the world's biggest market, may climb about 60 percent in the next eight years, Mr. Mittal said Sunday, adding his company is focusing on making steel for industries including vehicles and white goods in China.

Challenges have plagued Chinese mills, which produce about half the world's steel, and they are seeking better technology and higher-value products such as auto steel to help stem losses and improve productivity.

Talks over the near-decadelong ban come amid a wider push by China's leadership to boost foreign investment and to open up its state-owned industries. The nation has already announced plans to seek private capital for its top energy companies.

"It can be a game-changer," Tom Price, a global commodities analyst with UBS AG in Sydney, said by phone. Mills with their own iron ore reserves may be more attractive to companies such as ArcelorMittal and South Korea's Posco.

About 80 of China's major steel makers had a combined loss of $370 million in the first quarter in what's been described as the harshest operating environment in history. Steel futures in Shanghai are trading near the lowest since their 2009 debut, and some mills have faced a credit squeeze as the government moves to curb overcapacity, worst in construction steel, and to protect the environment.

The glut of unused capacity reached 300 million tons last year, according to the China Iron and Steel Association. The nation's capacity utilization rate dropped to 74 percent in 2013, the lowest in more than a decade.

Still, talks over the deregulation of foreign ownership of steel mills might take time because there are opposing views on the issue, Li Xinchuang, deputy secretary general of the China Iron and Steel Association, said last month. A call and fax to the Ministry of Industry and Technology in Beijing last week weren't responded to.

For foreign steel makers such as ArcelorMittal, their ambitions in China have been curtailed amid the ban. ArcelorMittal in 2008 shelved a plan to take majority control of nonstate China Oriental Group Co. after failing to win approval. China in 2009 rejected a plan by Russia's Evraz Group SA to take 51 percent of Delong Holdings Ltd. Evraz currently has 15 percent in Delong.

Automobile output may rise to 30 million units to 35 million units in the next seven to eight years, from 22 million units now, Mr. Mittal said Sunday. The new auto venture with Hunan Valin Steel Co. has annual output capacity of 1.5 million tons.

"At this time our agenda is to participate in this niche market," Mr. Mittal said.

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