CISA blasts ArcelorMittal for not backing Chinese partner

Wed Aug 3, 2011

* Valin failed to get iron ore from ArcelorMittal
* ArcelorMittal failed to support Valin in auto sheet JV
* CISA says ArcelorMittal suspends investment on timing concerns

BEIJING, Aug 3 (Reuters) - The China Iron & Steel Association (CISA) has criticised ArcelorMittal , the world's top steelmaker, for not fulfilling its commitment to support its Chinese partner, the Hunan Valin Group .

ArcelorMittal failed to provide Valin with the technical support needed for their joint venture auto sheet plant in China, and did not fulfil promises to help the Chinese firm secure supplies of iron ore, Chi Jingdong, CISA's deputy secretary general, told reporters on Tuesday.

"ArcelorMittal has not fully met its commitment to Valin in some aspects until now, including iron ore purchases," he said.

ArcelorMittal promised to assist Valin Group to buy 3 million tonnes of ore in 2005 and increase volumes in line with Valin's growing demand.

A unit of the China Securities Regulatory Commission (CSRC) in Valin's home province of Hunan, upon checking with the Chinese firm, discovered ArcelorMittal had not helped it source iron ore. As a result, Valin incurred total additional costs of 780 million yuan ($121 million) over 2006-2009, the regulator said.

"ArcelorMittal promised to buy iron ore at lower prices for Valin, but it didn't meet (the promise) after 2005," Chi said.

When contacted by Reuters, a spokeswoman for ArcelorMittal said: "We are reviewing the report by CSRC and will respond to the regulator within the statutory period."

ArcelorMittal agreed to set up the steel auto sheet joint venture with Valin and its listed arm Hunan Valin Steel Co more than three years ago.

The plant, 33 percent owned by ArcelorMittal, was approved by regulators last year.

Under the agreement, ArcelorMittal agreed to provide technical support for the Chinese steel mill and its unit Lianyuan Steel, which will be responsible for producing hot-rolled coil for the new sheet plant.

However, regulators in Hunan said no technical support was made available, and a hot-rolling mill built especially for the joint venture ended up making losses of 857 million yuan last year.

"Valin encountered some difficulties in production and made losses, so ArcelorMittal's policymakers didn't think this was the right time to build new production lines and temporarily suspended big investment in Valin," Chi said.

China, the world's second-largest economy, has been encouraging steelmakers to improve technology in a bid to improve quality and efficiency.

Valin's shares have fallen about 8 percent since early July while shares of ArcelorMittal have slumped 14.7 percent over the same period. ($1 = 6.434 yuan)