Hebei Iron and Steel takes stake in Duferco

China's largest steelmaker, Hebei Iron and Steel Group Co Ltd, will take a controlling stake of 51 to 52 percent in Swiss-based steel trader Duferco, a move that signals China's determination to offset pressure from domestic overcapacity, experts said.

The deal, with an investment of about $400 million, is expected to be signed by the end of the year after the Hebei-based steelmaker gets the government's green light, Chinese news website 163.com reported.

"Duferco has a global network covering the iron and steel market in South Africa, and it can help us expand in the overseas market," Peng Zhaofeng, general manager of HBIS, was quoted by the website as saying at an industry forum over the weekend.

Neither HBIS nor Duferco International Trading Holding, a subsidiary of the private Duferco Group in Lugano, Switzerland, one of the world's largest steel trading and producing firms, was available for comment.

In 2013, Tangshan Iron and Steel Group Co, or Tangsteel, part of HBIS, acquired a 10 percent stake of Duferco for $78 million, which gave Duferco the exclusive right to sell Tangshan steel outside Asia.

Liu Xinwei, an analyst at SCI International, a commodity market information provider, said HBIS is eyeing the large trading network of the Swiss steel trader as excessive domestic production has dogged China's steel sector for years, wasting resources and causing big losses at heavily indebted mills.

"Overcapacity is still a big problem in China, and many steelmakers are aggressively trying to export steel," Liu said. "The partnership will help the company boost its exports."

HBIS, China's largest steel mill in terms of production capacity, said last week during a signing ceremony with Industrial Development Corp of South Africa and the China-Africa Development Fund in Beijing that it plans to set up a 5 million metric ton plant in South Africa.

The first phase, 3 million tons, will start construction in 2015 and be put into use in 2017. The second phase will start production in 2019.

Yu Yong, president of HBIS, said that it is an important step forward toward the goal of adopting the company's "going global" strategy and helping it to gain a strong foothold in South Africa.

But the Chinese company is not the first buyer of shares in Duferco. Ukraine's Industrial Union of Donbass, a steel producer with annual capacity of more than 10 million tons, also owns a stake in the company.

China announced earlier this year it would ban new projects in industries including steel and cement until 2017 while gradually eliminating operations that are not able to meet new standards.