The plant, which burns iron ore and coal, may produce 4 million metric tons of steel a year, Kim Soo Min, executive vice president of the Incheon, South Korea-based company, said March 7 by telephone. Output from its first two blast furnaces under construction will start from 2010.

Blast furnaces allow Hyundai Steel to make automotive steel and heavy plates used in ships and compete with rival Posco as demand increases. The move also paves the way for BHP Billiton Ltd. and other mining companies to sell more iron ore and coal to Hyundai Steel.

“It is a business that’s worth trying in the longer term,” Kim Gyung Jung, an analyst with Samsung Securities Co., said in Seoul. “Global steel demand will continue to grow led by Asia and the Middle East. In addition, the company’s affiliate Hyundai Motor will need steel at a steady pace.”

Prices of steel plates may gain as shortages will persist in Asia until 2010 because of demand from shipyards in China and South Korea, Mirae Asset Securities Co. said last month.

Posco, the country’s largest steelmaker, plans to raise sales of automotive steel by 9 percent this year to bolster profits.

“We’ll have to see when is the best time to build a third blast furnace,” Hyundai Steel’s Kim said.

The first two blast furnaces will have a combined capacity of 8 million tons a year. Hyundai Steel currently produces 11 million tons of steel from its electric-arc furnaces, which use scrap metal as a raw material.

South Korean steelmakers’ combined spending on capacity expansion may rise by 63 percent to a record 7.06 trillion won this year, the Korea Iron & Steel Association said Sunday.

The company plans to sign agreements this year to buy more iron ore to supply its first two blast furnaces, Hyundai Steel said in a statement Sunday.

It has secured 70 percent of the 13 million tons a year of iron ore needed with Rio Tinto Group and Cia Vale do Rio Doce, it said. It expects to complete a contract with BHP Billiton to buy as much as 5 million tons of iron ore by June, the Korean company said.

It also expects to confirm an accord to buy as much as 1.5 million tons of coking coal from Rio, it said.

Vale, Rio and BHP are the world’s three largest iron ore exporters. Iron ore prices will surge as much as 71 percent from April, the sixth straight year of increase, due to rising Asian demand. Coking coal prices may double, analysts said.

“We are virtually in a war-like situation, competing for iron ore and coal in the global market,” Kim Tae Young, chief executive officer for Hyundai Steel, told reporters on Feb. 14 in Dangjin, south of Seoul, at the site of the new mills.

“We are talking to several miners including those in South Africa to secure more supplies,” Kim said. The company will buy less than 10 percent of its raw material requirements under spot contracts, while the remainder will be bought under long-term deals, he said.

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