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Mittal Aims to Expand Iron-Ore Capacity by 66% in Five Years

Lakshmi Mittal, CEO of ArcelorMittal
Lakshmi Mittal, president and chief executive officer of ArcelorMittal, listens during the company's earnings news conference in Luxembourg, on Feb. 11, 2009. Photographer: Wolfgang von Brauchitsch/Bloomberg

ArcelorMittal, the world’s biggest steelmaker, plans to expand iron-ore capacity by two-thirds within five years to protect against price volatility, Chief Executive Officer Lakshmi Mittal said.

It aims to raise capacity to 100 million metric tons from 60 million tons, he said today in an interview in New York.

“Vertical integration has always been our strategy and now it gets even more reinforced,” he said.

Steelmakers paid higher prices for iron ore and other raw materials such as coking coal this year on rising demand in China, the world’s largest producer of the metal. They also face having to buy iron ore from BHP Billiton Ltd., Vale SA and Rio Tinto Group, the three biggest exporters, based on quarterly contracts instead of fixed-price, annual accords.

Mittal said earlier in a speech at the Steel Success Strategies conference that he doesn’t favor quarterly pricing, which could be “dangerous.”

“The reality of quarterly pricing means raw material costs will increase over the remainder of this year,” he said in the speech.

Australia’s BHP and London-based Rio are likely to increase quarterly iron-ore prices by about 23 percent in the three months starting July 1, according to Macquarie Group Ltd. The spot price for 63 percent iron ore has advanced 90 percent in the past 12 months, according to data from The Steel Index.

ArcelorMittal’s mines supply about half its iron ore needs, and the Luxembourg-based company is seeking to bolster self-sufficiency in coking coal to as much as 25 percent from 15 percent, Head of Strategy Bill Scotting said in December.

The company has added mining assets in Brazil and Russia since Mittal Steel Co. bought Arcelor SA in 2006 in the steel industry’s biggest takeover.

Chinese steel demand, which rose 25 percent last year, created an imbalance in the iron-ore market, Mittal said in his speech. China’s demand may rise 10 percent this year, higher than his earlier forecast of 5 percent, he said.

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