Rising raw material costs for steel have pushed prices higher and with a lack of liquidity in the financial system projects in Asia are being put on hold, industry leaders told a conference.

Infrastructure projects, in which steel is one of the main items, are being delayed. Steel expansion or new steel schemes are expected to be cut back in other parts of the world.

“Vietnam has been affected, but also India, there are projects that are being put on hold now,” said M. Shaad, commercial manager at metals trading firm Global Allianz UK Ltd.

Speaking on the sidelines of this week’s Bureau of International Recycling Conference (BIR), Shaad said that trading partners in his main market India suffered from a tightening of credit for purchases of metals and scrap metals.

“In Vietnam it is purely because of the credit crunch,” Shaad said, referring to bankers being reluctant to lend money due to a lack of liquidity in the global economic system.

Difficulty in financing steelmaking and scrap processing operations was seen in the United States with lenders reluctant to increase credit lines, Jeremy Sutcliffe, Chief Executive of metals recycler Sims Group, told the conference.

This is going to be an increasing problem, as steel buyers find that existing credit facilities are insufficient to finance their ongoing requirements. With steel costs doubling and banks reluctant to extend further credit facilities, companies are going to find it increasingly difficult to fund the stock they need to keep manufacturing running at optimum levels. This will not only affect Eastern economies, but those of the West too.

By Tom Miles and Miranda Maxwell

HONG KONG/SYNDEY (Reuters) - A proposed $3.2 billion tie-up of two Australian iron ore miners raises the stakes for Chinese commodities trader Sinosteel, which covets both.

China’s roaring demand for steel has set the iron ore market alight, driving up prices and stirring interest in resource-rich areas.

Two of the biggest beneficiaries are Midwest Corp (MIS.AX: Quote, Profile, Research) and Murchison Metals Ltd (MMX.AX: Quote, Profile, Research), which are battling to lead the development of Western Australia’s Yilgarn iron ore province and weaken the dominance of BHP Billiton (BHP.AX: Quote, Profile, Research) and Rio Tinto (RIO.AX: Quote, Profile, Research), which produce from the Pilbara region further north.

Sinosteel, looking to seize the opportunity, is bidding for Midwest. But Murchison threw a spanner in the works on Monday by negotiating a friendly tie-up with Midwest that would leave the Chinese firm, a 20 percent Midwest shareholder, with a measly 10 percent stake in a combined company.

But few market watchers think that will be the end of the story.

“We believe Sinosteel will not simply abort its bid for Midwest,” Stephen Gorenstein, an analyst at Goldman Sachs JBWere, said in a note to clients. “Its options include coming back with a superior cash bid or waiting on the sidelines and potentially making a bid for the merged entity.”

A marriage of the two leaders in the region was bound to happen, experts say, since they will share railway and port infrastructure and could cut costs by merging adjacent projects.

Midwest’s shareholders will vote on the deal 28 days after a scheme of arrangement document for the merger is issued, giving Sinosteel four weeks to intervene.

IN CHINA’S SIGHTS

Murchison’s move has upped the ante after it failed to snare Midwest with a A$748 million all-stock offer late last year.

Midwest then rejected a takeover proposal from Sinosteel, which turned hostile with a bid of A$5.60 a share before finally winning the recommendation of Midwest’s board with an offer of A$6.38, conditional on getting 50.1 percent acceptance.

Midwest shares closed at $7.03 on Tuesday, a price that puts Sinosteel’s offer in the shade and implies investors do not expect it to trump the merger terms, equivalent to A$7.36 a share at the market close on Tuesday.

A sticking point in Sinosteel’s approaches to Midwest has been David Law, a Malaysian board member who holds 13.3 percent of Midwest and who, according to media reports, was keen to avoid incurring a large tax liability by selling.

The reverse takeover format of the merger proposal would overcome that objection by having Midwest absorb Murchison.

But Sinosteel cannot afford to let go. And it has an ace in its pack: a joint venture with Midwest, which has said China’s investment is critical to the development of its major projects.

“I struggle to see how you could execute a deal with an unhappy joint venture partner,” said an investment banker who declined to be identified due to the sensitivity of the issue, referring to Sinosteel. “This is a last ditch attempt by Murchison.”

Another option would be for Sinosteel to bid for Murchison, in which it already owns 2.4 percent.

Sinosteel approached Australian authorities with a bid for all of Murchison earlier this year but was one of around a dozen firms that had to withdraw a takeover application as officials tightened rules on foreign investment, another banker said.

“At some point, you start to develop a level of discomfort. Given the amount of deals China has done into Australia, I think we’re getting there,” said a Hong Kong-based investment banker, who like the other banking sources did not want to be identified for commercial reasons.

But Australia has welcomed investments that will help develop its resources and China desperately needs iron ore, leading it to put higher valuations on lower quality ores than other buyers.

Murchison thus appeared to skew its attractiveness further towards China by saying on Tuesday that its Jack Hills project had 13 percent more high-quality ore than thought but five times as much low-grade ore, making it a much bigger, but higher-cost, project.

But Jack Hills is being mined by Crosslands Resources Ltd, a joint venture between Murchison and Mitsubishi Corp (8058.T: Quote, Profile, Research) of Japan, which is also keen to secure iron ore supplies.

“This is critically poised at the moment,” said one banker. Will this turn into China Inc versus Japan Inc? Who knows?”

He said the deciding factors in the race to build a 30-40 million tonne producer might turn out to be neighboring miners such as Mount Gibson Iron (MGX.AX: Quote, Profile, Research) and Gindalbie Metals Ltd (GBG.AX: Quote, Profile, Research), whose shares rose 10 percent on Tuesday.

Both are widely thought to be in China’s takeover sights.

HELSINKI, FINLAND–(MARKET WIRE)–May 14, 2008 –
Metso Corporation: Press release on May 14, 2008 at 2.00 p.m. local time

Metso Minerals will supply an iron ore induration machine to Global Supplies Ltd., a member of the Essar Group. The machine will be delivered to Essar Steel Holdings Ltd. for its Paradeep Pellet Plant located in Paradeep, India. The delivery will be completed during the second quarter of 2010. The value of the order is approximately EUR 17 million.

The order comprises a 744 square meter induration machine with 270 pellet cars with a feed rate of 700 tonnes per hour of iron ore pellets, as well as auxiliary equipment, start-up, commissioning and training services.

Global Supplies specializes in global procurement and project execution. The end customer Essar Steel Holdings Limited, is a global producer of steel with a footprint covering India, Canada, USA and the Middle East. It is India’s largest exporter of flat steel products.

Metso is a global engineering and technology corporation with 2007 net sales of over EUR 6 billion. Its almost 27,000 employees in approximately 50 countries serve customers in the pulp and paper industry, rock and minerals processing, the energy industry and selected other industries.