The world's largest iron ore producer and China's largest steelmaker are studying plans to build a Brazilian steel mill that would produce 3.7 million tons of steel a year, the two companies announced Monday.

The mill would be located in the northeastern state of Maranhao, and could be expanded to eventually produce 7.5 million tons of steel.

Analysts have known that Brazil's Companhia Vale do Rio Doce SA and China's Shanghai Baosteel group were studying the idea, but the announcement gave them an idea of the scope of the project for the first time. European steel giant Arcelor also plans to participate in the project.

The companies did not say how much the mill would cost, but press reports have suggested it could cost $1.5 billion and start producing in late 2007 or in 2008.

CVRD and Arcelor already jointly control Brazil's biggest maker of steel slabs, Companhia Siderurgica de Tubarao. CST sold 4.65 million tons of steel in 2002 and is planning to add a third blast furnace that would lift output to about 7.5 million tons of steel per year in 2006.

CVRD is the world's biggest iron ore exporter, Arcelor is the world's biggest steelmaker, and Baosteel is the biggest steelmaker in China.

Last week CVRD said it mined a record-setting 186 million tons of iron ore in 2003 and plans to invest US$1.82 billion this year to raise output another 73 million tons in coming years.

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