Smorgon Steel Expands Scrap Operation Into Asia

Smorgon Steel Group will expand its scrap metal collection business into the Asian market with the purchase of Hong Kong-based Hartwell Pacific.

Smorgon reached an agreement to acquire a 50 percent interest in Hartwell Pacific with an option to acquire the balance of the company's equity, subject to due diligence.

Hartwell specializes in processing non-ferrous scrap metal. According to press reports it is the largest processor of stainless steel in southeast Asia.

Smorgon is a major producer of steel and steel products, and sources all of its steel through scrap.

Smorgon managing director and chief executive Ray Horsburgh said the Hartwell purchase would increase Smorgon's exposure to the scrap metal business and would provide the Australian company with a substantial operation in Asia.

Horsburgh said the transaction was part of the company's plan to expand its recycling division and was in line with its goal of seeking small acquisitions to enhance shareholder value.

Steel analysts said Smorgon would have to significantly increase its presence in the region if it wanted to cash in on the lucrative Chinese metal market.

"I think this (the Hartwell purchase) flags that the company's trying to position itself in preparation for China's growth," Deutsche Securities Australia steel analyst Daniel Kang said.

"But it's going to be difficult with such a small acquisition. The question now is, `are they going into this full-scale?'

"If they want to grow that part of their business in scrap handling then Hartwell is not going to give them the presence they want.

"My concern is their balance sheet is still fairly stretched, they still have a high gearing level and they're not in the position to go out strongly and extend on this."

Hartwell Pacific has its headquarters in Hong Kong and operates from eight

sites including South Carolina