Investing abroad not easy: Experts(2)

Hunan Valin Iron and Steel Group Co invested in Australia-based iron ore company Fortescue Metals Group Ltd in 2009, becoming the second-largest stakeholder with a current share of 14.72 percent of the shares. It is considered to be a success by Li Jianguo, general manager of Valin.

He said the key factor behind its success was not interfering with Fortescue's production operations and letting a local team manage its business through major shareholder discussion and participation in board meetings.

"It is proven that this is an effective way to manage overseas investments," Li said. "Valin has received positive financial returns on this investment."

Questioned whether Valin had any influence on Fortescue's iron ore prices and had no say regarding them, Li said the company's investment was to gain positive returns rather than getting below-market prices for iron ore products.

"Iron ore prices depend on supply and demand. Return on industry investment is realized by real market prices through low production costs and product sales."

Although many steel companies have secured iron ore supplies by investing abroad, Zhang said now is not a good time for overseas mergers and acquisitions, buying exploration rights or purchasing land because costs are currently high.

"Iron ore prices will continue to fall. It would be better to consider any possible investment after they fall even further," said Zhang.

China imported 384.29 million tons of iron ore in total in the first half of this year, up 5.1 percent year-on-year, according to the General Administration of Customs.

The average imported iron ore price during the first half was $133.2 a ton, down $6.30 compared with the same period last year.

The average imported iron ore price in June was $126.8 a ton, a $12 drop compared with May's figure.

The iron ore market in the first half was weaker than in the same period last year. The cost of China's iron ore imports for the first half totaled $51.2 billion, a slight increase of 0.3 percent year-on-year.

Cooperation

Valin's Li said its investment has promoted strategic cooperation between Fortescue and other Chinese enterprises.

Up to 50 percent of Fortescue's capital goods - valued at $2 billion - were sourced from China, said Neville Power, Fortescue Mining Group's chief executive officer.

"We believe the number will grow in the future," said Power.

The company's trains used for iron ore transportation from the processing plants to the port are made by two top train producers in China - CSR Corp Ltd and CNR Corp Ltd.

China International Marine Containers Group Ltd provides dormitories in miners' camps for company staff.

China's Fujian Haian Rubber Co Ltd is the supplier of tires for some heavy mining trucks used by Fortescue.

Because of the high standards required for such tires, which can be used in extreme weather and harsh geographic conditions, there are not many producers in the world. China hasn't exported these products before.

Haian Rubber was the first producer of such tires in China and the fourth in the world - the other three being in Japan, the United States and France.

For Chinese suppliers, making their presence known on the international market is more significant than making money. The mining giants usually get a good deal, which is a win-win situation.

Last June, Rio Tinto, another Australian mining company, bought custom-built trucks from Xiangtan Electric Manufacturing Corp, a manufacturer based in Xiangtan, a city in Hunan province. It was the first time the Chinese company had exported trucks and was a large step forward in its expansion into overseas markets.

According to the company, it spent $2 billion in 2012 in the Chinese market, $800 million more than the previous year.

Mark Rivers, general manager of emerging markets procurement for Rio Tinto, told China Daily the company was not only purchasing trucks but also looking for Chinese suppliers of other mining equipment with advanced technology.

He said he believes the high-technology equipment market in China will grow rapidly over the next decade.