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Agenda
1. Market structure: a supply side outlook
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Historically, foreign companies have played a prominent role in the Brazilian steel industry
Arbed (Luxembourg) entered in Brazil in 1921, by acquiring a majority stake in Belgo-Mineira (longs). It commissioned the first Brazilian integrated mill in 1925. Mannesmann (Germany) started-up its Brazilian subsidiary (tubes) in 1954. Nippon Steel and other Japanese investors own a minority stake in Usiminas (flats) since 1957. Usinor (France) purchased stake in Acesita (special flats) and Companhia Siderrgica de Tubaro/CST (semis and flats) in 1998. Bhler-Uddeholm (Austria) controls Villares Metals (special longs) since 2004.
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Others foreigner steelmakers used to take part in the Brazilian steel industry
Korf (Germany) controlled Fi-El (longs) during 1973-1976 as well as Pains (longs) along 1976-1994. Thyssen (Germany) had a minority stake in Gerdau Cosigua (longs) in the period 1975-1979 and in GalvaSud (galvanizing line) in 1998-2004. In CST, Finsider (Italy) was shareholder along the period 1976-1996 and Kawasaki Steel (Japan) from 1976 to 2004. NatSteel (Singapore) owned shares in Aominas (semis) during 1998-2002. Sidenor (Spain) was the largest shareholder of Aos Villares (special longs) from 2000 to 2006.
Flat steel products share has maintained around 62% in the last two decades
Production of rolled products by types (percentage)
Source: Brazilian Steel Institute (IABr). Preliminary data for 2010 shows a 60% production share for flats.
Source: Own elaboration. Votorantim has a relevant stake in Usiminas. Aperam was demerged from ArcelorMittal in January 2011.
New battles in the competitive arena, mainly due to vertical integration and product diversification
Sinobras and Cisam entered into long steel market in 2008. The first one belongs to the largest Brazilian independent distributor (Aos Cearense). The owner of the second (Ciafal) was a pig iron producer and re-roller. Gusa Nordeste (controlled by Ferroeste, an independent pig iron producer) is moving into billets and carbon longs in 2011-2012. CSN is going to jump into carbon long steel market in 20122013. It used to fabricate rails from 1947 to 1996. Gerdau will become a carbon flat steel producer by 20122013. ArcelorMittal had considered to engage into special longs before the global financial crisis. It is already a SBQ producer 8 in Argentina.
Excellent iron ore and tight scrap market explain the predominance of BOF process
Production of crude steel by process (percentage)
Source: IABr. Preliminary data for 2010 shows a 24% production share for EAF.
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Independent pig iron producers showed quite instable output and export levels
Production and export of pig iron (million tons)
Source: IABr. 163 mini blast furnace owned by independent pig iron producers, with a jointly nominal capacity of 15.6 Mtpy. One two of them (Usipar) are based on coke.
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Differently from India, the direct reduction has been not very successful in Brazil
Aos Finos Piratini, a SOE, was the sixth steelworks in the world to install a direct reduction module. The SL/RN utilized thermal coal and was in operation from 1973 to 1990. Usiba commissioned a HyL module in 1974, aiming to consume natural gas. It was privatized in 1989, being acquired by Gerdau. It is temporarily shut down since mid 2009. Purofer module (developed by Thyssen Krupp) was installed in 1977 at Gerdau Cosigua, but faced many problems and it was shut down in 1979. Companhia Siderrgica do Cear, a project analyzed by Vale, Dongkuk and Danieli, would be based on direct reduction. The venture was renamed Companhia Siderrgica do Pecm. Now, the partners are Vale, Dongkuk and Posco; it will be based on coke blast furnaces.
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Source: Own elaboration. Selected projects, of which there is recent publicly available information. Not necessarily all the projects will be implemented, even with delays.
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Source: IABr, Citi, UBS, Banco Nacional de Desenvolvimento Econmico e Social (BNDES).
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It is expected that ArcelorMittal will announced large investments for flat steel products 16 along this year.
* CSN controls 20% of Riversdale, with coal assets in South Africa and Mozambique, while Gerdau owns Cleary Holdings, a Colombian producer of coal and coke.
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The flat steelmakers subsidiaries detain a considerable market share in the distribution
Participation of flat steelmaker subsidiaries in distribution market (percentage)
Source: National Steel Distributor Association (INDA). It does not consider imports. Comercial Gerdau had a 10.2% market share in the flat distribution market in 2010.
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CSN Cement
ArcelorMittal
Gerdau
Votorantim Cement Aluminum Nickel Zinc Pulp & paper Orange Juice Financial
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* Usiminas sold its minority stake in Ternium (with operations in Argentina, Mexico, USA, Guatemala and Colombia) in February 2011.
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Medium-term perspectives
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Flat steel products share has maintained around 59% in the last two decades
Apparent consumption of rolled products by types (percentage)
Source: IABr. Preliminary data for 2010 shows a 60% market share for flats. There was a 26 methodological change in 1996.
Source: IABr.
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Final considerations
Greenfield projects, led by foreign companies, are focused on semis, whereas the incumbents prefer to amplify its rolled capacity. There will be a increasing competition in each market segment, mainly because of the investments carried out by current players and, in lesser extend, by vertical integration of related producers. Due to the higher input prices, the steelmakers were engaged into enlarging its backward vertical integration degree. Domestic vertical integration is the name of the game now. However, internationalization is a top priority for Gerdau. Rolled products continue to be a domestic market oriented business.
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Thank you!
germano@ufu.br gmpaula@uol.com.br
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