Nippon Steel puts iron ore, coal on $1 bln fund's investment radar

By Yuka Obayashi

TOKYO (Reuters) - Japan's Nippon Steel & Sumitomo Metal Corp may consider investing in iron ore or coking coal mines from its nearly $1 billion warchest for overseas investments but won't bid for the U.S. plants of Russia's Severstal, an executive said.

The world's second-biggest steelmaker by crude steel output will be eyeing the mining investments while prices of the commodities are low although it is not negotiating any deals in the segment currently, Executive Vice President Katsuhiko Ota told Reuters in an interview earlier this week.

"We'll seriously consider investing if there is a good deal. There is no specific deal on the table now, but we'll use some of the 100 billion yen fund if any good target arises," Ota said.

Nippon Steel currently gets about a quarter of its required iron ore and 20 percent of coking coal from mines in which it has invested.

Benchmark iron ore prices are down more than 40 percent since mid-2011, while coking coal prices have plunged by two-thirds over the same period.

Nippon Steel, Japan's biggest steelmaker by crude steel output, has set aside 100 billion yen ($979.72 million) for expansion, mostly overseas, in the year through March 2015.

Buoyed by strong profit growth as a result of the massive government stimulus from Abenomics, the namesake policies of Prime Minister Shinzo Abe, Japanese steelmakers have the muscle to expand overseas while rivals like South Korea's POSCO are restructuring amid a global steel glut.

Nippon Steel will continue expanding in markets including the United States - where it completed the purchase of a ThyssenKrupp AD plant with ArcelorMittal in February - Indonesia, India and China, Ota said.

It has been in talks with Indonesia's largest steelmaker PT Krakatau Steel since late 2012 to set up a joint venture to produce automotive flat steel in Indonesia.

"The negotiations have advanced, but no final decision has been made. We are continuing our feasibility studies," Ota said, adding that fresh investments in India and China may be made through existing ventures.

Nippon Steel has a tie-up with Tata Steel Ltd in India and Baosteel in China.

Ota said the fund will be used to build new plants or for mergers and acquisitions, but added there were no plans to bid for Severstal's U.S. operations.

Severstal said earlier this month that it was considering a range of strategic options in relation to its North American operations.

A Russian source familiar with the matter said that Severstal had received bids from potential buyers for its U.S. operations which consist of steel plants in Dearborn, Michigan and Columbus, Mississippi.

"In the United States, we aim to focus on high-end steel, mainly for automobiles. We have no intention to invest in old integrated mills which include blast furnace," Ota said.

Nippon Steel's annual overseas output capacity of automobile steel sheet, combined with the recently purchased U.S. plant, is expected to hit 9 million tonnes this year, surpassing domestic capacity of 8 million tonnes, according to the company.

($1 = 102.0700 Japanese Yen)

(Editing by Aaron Sheldrick and Muralikumar Anantharaman)