Japan's JFE Steel and Bahrain's Foulath to Build 7 Million-Ton Pellet Plant in Oman

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Researched by Industrial Info Resources (Sugar Land, Texas)--JFE Steel Corporation (Chiyoda, Tokyo), the world's third largest steel manufacturer and one of the main operating companies of JFE Holdings Incorporated (TYO:5411) (Chiyoda), has entered into an agreement with Bahraini steel maker Foulath (Manama) to set up a 7 million-ton-per-year iron ore pellet plant in the Salalah Free Zone in Oman. JFE will have a 40% stake in the joint venture while the remaining will be held by Foulath. The project is estimated to cost $700 million and JFE will invest $110 million. The joint venture company will be capitalized at $280 million and 60% of project is to be financed through bank loans.

The plant, expected to be operational by 2011, will process low-grade iron ore to produce pellets. Pellets are used as a feed in blast furnaces and their consumption is expected to increase in the future because of the declining availability of high-grade lumpy ore. The pellet plant will be the first of its kind for JFE abroad. Foulath has more than 24 years' experience in operating pellet plants.

Of the expected capacity of 7 million tons per year, about 3.5 million tons will be consumed by JFE on a long-term basis for more than 20 years while the remaining will be sold to direct-reduced-iron and blast-furnace plants in the Middle East and Oman. JFE stands to benefit, as this deal assures a long-term stable supply of raw material at a significantly lower cost for its steel manufacturing business. This will meet about 10% of the total amount of iron ore that the firm's annual iron-ore requirements. Currently, Japan's leading steel majors including JFE and Nippon Steel Corporation (TYO:5401) (Chiyoda) procure about 70% of iron ore, a primary raw material for producing steel, from Australia.

The Salalah Free Zone, where the plant will be located, is strategic for the joint venture as it offers tremendous potential for growth in the near future because of its proximity to emerging markets in Middle East and South Asia. Some of the other benefits that the location offers include well developed port infrastructure, easy availability of fuels and long-term tax subsidies for corporate tax. These, in turn, will increase the project's profit margins.

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