April 1 (Reuters) - Kobe Steel Ltd  said it would build a 40 billion yen ($431.2 million) plant in Bahrain for United Steel Co to produce direct-reduced iron, the Nikkei business daily reported.

The plant, which will have an annual capacity of 1.5 million tonnes, is expected to begin operations in early 2013, the report said.

United Steel Co is a joint venture of Bahraini steelmaking materials producer Foulath and Japanese electric furnace steelmaker Yamato Kogyo Co.

Kobe Steel will be involved from design and equipment procurement to construction and start-up of the facility, the paper said.

Kobe Steel hopes to sell more direct reduction plants in the Middle East, Northern Africa and elsewhere by promoting the facilities' lower construction and operating costs compared with blast furnaces, the daily said.

The plant will use natural gas to reduce iron ore. Direct reduced iron is used to make steel in electric furnaces. ($1=92.75 Yen) (Reporting by Abhinav Sharma in Bangalore; Editing by Gopakumar Warrier)

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