By Wang Lan (China Daily)
Updated: 2007-08-31 09:23

Tangsteel Group, the largest steel company in Hebei Province, said it would team up with a top global shipping company to build and operate its own shipping fleet to cut transportation costs at a time when freight rates are surging.

The steel group initially plans to build two to three ships of about 300,000 tons each to transport the iron ore produced by Brazilian mining companies, which are its major suppliers, said Qiu Hongwei, a senior executive at Tangsteel Group, one of the top 10 Chinese steelmakers based in Tangshan of North China's Hebei Province.

Qiu added that the group is negotiating with several potential joint venture partners, including some of the largest global shipping companies. He declined to elaborate.

"Building our own shipping fleet is an effective way for the company to control the transport costs of raw materials, because freight rates are expected to continue to rise."

However, Qiu noted that the proposed joint venture company would operate independently as a profit-oriented business. "We need a partner with rich experience in operating a shipping company to ensure success."

Last year, Tangsteel Group's annual output of crude steel was 19.05 million tons, the second highest in China.

"The rising freight cost in the international markets is wiping out an increasing portion of steel companies' profits and increasing the pressure on these companies to control costs," said Ma Keming, a steel industry analyst at Huatai Securities. Failure to do so could hamper the development of China's steel industry, which relies heavily on imported materials from around the world, he said.