a company and industry analysis- latin america - metal
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Industry Report - Metal Works - July 2009
A Company and Industry Analysis July 2009
CONTENTS
Current Environment
Sector Overview
Sector Performance
Leading Companies
Mergers, Acquisitions and
Alliances
Industry Profile
Industry Size and Value
Industry Focus- Aluminum
- Steel
- Copper
Sector Investment
Market Trends and Outlook
Economic Slump Dents
Investment
Steelmakers Cut Costs to Stay
Afloat
A Grim Outlook for the
Regions Steel Market
Market Outlook
Country Profiles
Brazil
Chile
Mexico
Peru
Venezuela
Currency Conversion Table
The Scope of this ReportKey References
Comparative Data
Reports Coverage
Current Environment Key Points
The economic slowdown hit the Latin American metal works industry hard over the last six months,
reaching its most critical point during the first quarter of 2009.
In the first quarter of 2009, Latin American metal works companies saw their earnings crumble, as
a result of a weak demand for steel products.
The majority of metals companies faced problems refinancing as the first half of 2009 progressed,rocked by unprecedented economic and market upheaval.
Merger and acquisition activity in most industries, particularly the metals industry, dropped sharply
in the first half of 2009, as world demand fell and prices plummeted.
Industry Profile Key Points
Prior to the global market meltdown, the regions metal industry enjoyed a sustained period of
strong demand growth for almost a decade.
The regions crude steel output dropped by 35.8% year-on-year to 18.4 million tons in the first five
months of 2009.
The worlds largest copper producer and exporter, Chile, saw year-on-year copper output tumble
by 9.8% in February to 383,057 tons, the eight successive monthly drop. Despite the deepening economic crisis, the metals industry is attracting more investment interest as
a number of key players see the recession as an opportunity.
Market Trends and Outlook Key Points
A reduction in steel demand, local and foreign credit restrictions and declining confidence levels
among consumers and investors continues to slow Latin American steel industrial activity.
Tightness in the regions steel industry and weak demand related to the downturn is forcing
steelmakers to cut costs.
Financial and environmental challenges is forcing domestic and international steelmakers to cut
their workforces, reduce production and even close excessive capacity.
Demand for steel and steel products is continuing to fall amid the global manufacturing slump,
with steel production in the first quarter of 2009 down 40% year-on-year to 10.1 million tons.
The outlook for the regions metal market for this year points to slowing or subdued demand and a
possible slow recovery later in the year.
1
Latin America
Metal Works Sectors
Adding Value to Information Since 1900
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Copyright Statement
Copyright 2009 by Mergent, Inc. All Information contained herein is
copyrighted in the name of Mergent, Inc. and none of such information may be
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The Latin America Industry Reports are
published by Mergent, Inc., headquartered in
Fort Mill, South Carolina, USA. Each
industry sector report is updated every six
months. Mergent, Inc., a leading provider of
global business and financial information on
publicly traded companies, operates sales
offices in key North American cities as well as
London, Tokyo and Melbourne.
Publisher
Jonathan Worrall
Director
John Pedernales
Managing Editor
Peter OShea
Research Analyst
Pong Wui Yeo
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Current Environment
After the US financial crisis picked up pace in the second
half of 2008, most industries around the globe experienced
a downturn. The slowdown affected the Latin American
metal works industry, which reached its most critical
point in the first quarter of 2009. The bearish industry
performance was the consequence of the abrupt drop in
economic activity, both globally and locally.
In some cases, metal prices, which had seen an
unprecedented rapid rise in 2007 and the first half of 2008,went into freefall. By the end of 2008, hot band prices
around the world had dropped from over US$1,000 per
ton to just over US$500 per ton, according to the London
Metal Exchange. Prices for copper and aluminum faced
the most dramatic decline, shedding around 60% or more
of their July and August 2008 highs. At these lower price
levels, global aluminum production and a large number of
metal companies in Latin America were operating at a loss.
By the end of the first half of 2009, steel prices had not
experienced any real growth.
In the first quarter of the year, global steel production
contracted sharply, adjusting to the new level of demand.Crude steel production sank 50.4% to 2.5 million tons in
the first quarter, compared with 5.1 million tons a year
earlier. Production of finished steel tumbled 44.1% to 2.45
million tons, from 4.38 million tons in the first quarter of
2008.
In the first half of 2009, the decline in the Latin American
metal industry went from the steep to the deep. A sharp rise
in commodity prices in the first half of last year gave way to
a deep slump. As the full scale of the global depression and
the credit crisis intensified, the momentum for deal activity
slowed, affecting metal-consuming industries, such as the
automotive and construction sectors.
The downturn and the tightening of credit affected merger
and acquisition (M&A) activity dramatically. As world
demand fell and prices plummeted, Latin American metal
industry deal making fell away sharply in the first half of
2009. With few M&A deals in the pipeline, most Latin
American companies looked elsewhere to find opportunities
for growth. Latin American metal works companies saw
their earnings crumble in the first quarter, a direct reflection
of the weak demand for steel products, which is not likely
to begin rising strongly before the end of this year.
Sector Performance
The global metals industry was rocked by unprecedented
economic and market upheaval in the fourth quarter
of 2008 and, as the industry moved through the first
quarter of 2009, conditions remained just as challenging.
The majority of Latin American metal companies faced
problems in refinancing in the second half of 2008 and first
half of 2009.
However, over the six months from January 1 to June 22,
Brazilian steelmaker Companhia Siderurgica Nacional
(BVSPA: CSNA3) outperformed its competitors, with its
share price swelling by 49.2% in the first half of 2009.
Another leading Brazilian steelmaker Gerdau SA (BVSPA:
GGBR4) saw its share price increase by 33.1%, while the
share price of Grupo Simec SAB de CV (AMEX: SIM),
Mexicos largest steelmaker, rose 22.6% in the same
period. Gains in commodity materials prices in May
pushed Brazilian and Mexican markets higher, as continuedweakness in the US dollar made commodities and local
currencies more attractive.
At the beginning of June, stocks of most Latin American
metal companies rebounded, as oil prices hit year highs.
Sector Overview
Table 1: Stock Performances of Leading Latin American Metal WorksCompanies
Company
% Increase inShare Prices(January 1
June 22, 2009)
Companhia Siderurgica Nacional 49.2%
Gerdau SA 33.1%
Grupo Simec SAB de CV 22.6%
Empresa Siderurgica Del PeruSAA
19%
Madeco SA 7.4%
Source: Mergent analysis, 2009
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Current Environment
The regions stocks surged, with oil, copper, soy and othercommodity prices rebounding, as investors bet that a
global economic recovery would boost demand for Latin
Americas major exports, such as metals. The share price
of Peruvian steelmaker Empresa Siderurgica Del Peru
SAA (BVL: SIDERC1) and Chiles Madeco SA (BSAN:
MADECO) rose 19% and 7.4%, respectively, over the
six-month period, as investors saw steel as an attractive
alternative to other investments.
Leading Companies
Gerdau SA (BVSPA: GOAU4)
Gerdau SA, headquartered in Porto Alegre, Brazil, produces
and sells steel and related long rolled products, drawn
products and long specialty products. The companys net
income dropped to R$35 million (US$17.36 million) in
the first quarter of 2009, from R$1.09 billion (US$540.77
million) in the equivalent quarter of 2008, due to lower
operating income, which plummeted more than 80% to
R$189.55 million (US$94.04 million), from R$1.50 billion
(US$744.18 million) in the first quarter of 2008. The drop
in international steel prices and lower sales volume caused
revenue to slip 22% to R$6.97 billion (US$3.46 billion),
compared with R$8.94 billion (US$4.43 billion) in the
same period of the previous year. The company plans to
invest US$3.6 billion in fixed assets over the next fiveyears, including US$550 in 2009.
Madeco SA (BSAN: MADECO)
Madeco SA, headquartered in Santiago, Chile, manufactures
finished and semi-finished non-ferrous products based on
copper, aluminum, and related alloys. In the first quarter
of 2009, the companys net income shrank 62.2% to
US$6.36 million, compared with US$16.83 million in
the corresponding quarter of 2008, due to the sale of its
cable operations at the end of September 2008. Revenue
decreased by 28.9% to US$84.20 million, compared with
US$118.36 million in the same period of 2008. The dropwas due to lower sales volumes and reduced prices of the
companys raw materials, mainly copper and aluminum.
Its quarterly operating income grew 22.6% to US$5.28
million, compared with US$4.30 million in the first
quarter of 2008. The increase was due to higher gains
from it brass mills and packaging units, offset by lower
gains from the profiles unit. Operating income for the
brass mills and packaging units increased by US$2.04
million and US$1.77 million, respectively, from the firstquarter of 2008. However, operating income from the
profiles unit saw a loss of US$1 million, compared with a
gain of US$1.51 million in the same period of 2008, due
to reduced gross margins and higher selling, general and
administrative expenses.
Grupo Simec SAB de CV
Grupo Simec SAB de CV, based in Guadalajara, Mexico,
produces, processes, and distributes special bar quality
steel products. The companys net profit dropped 26% to
MEX$440 million (US$32.49 million) in the first quarter
of 2009, from MEX$592 million (US$43.71 million) in
the corresponding quarter of 2008. Net sales dipped 30%
to MEX$5.08 million (US$375,107.20), compared with
MEX$7.29 million (US$538,293.60) in the first quarter of
the previous year, driven by lower shipments. Shipments
of finished steel products sank 32% to 506,000 tons,
compared with 745,000 tons in the same period of 2008.
Its operating profit fell 56% to MEX$385 million (US$28.43
million), compared with MEX$878 million (US$64.83
million) in the first quarter of 2008, due to a 32% reduction
in shipments. Total sales outside Mexico dropped 59% to
MEX$2.22 billion (US$163.92 million), compared with
MEX$5.42 billion (US$400.21 million) in the equivalent
quarter of 2008. Conversely, total Mexican sales surged53% from MEX$1.87 billion (US$138.08 million) in the
first quarter of 2008 to MEX$2.86 billion (US$211.18
million) in the corresponding quarter of 2009.
Mergers, Acquisitions and Alliances
The pace of consolidation in the global metals industry
slowed significantly in most regions. The number of M&As
in the Latin American metal industry was significantly
less, and deals were smaller, in the first half of 2009. Due
of the economic crisis, major metal players postponed
acquisitions. However, they also closely monitored
industry developments, waiting to capitalize on majordrops in the market values of companies. Some may even
take the opportunity to position their business for growth
by acquiring weaker competitors at lower valuations.
In 2008, the level of M&A activity in most industries,
particularly the Latin American metal industry, dropped
sharply, as world demand fell and prices plummeted.
The collapse of Lehman Brothers in the fall of 2008 was
the catalyst for the global credit crisis, leading to a deep
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Current Environment
recession, and resulting in a steep fall in commodity pricesand stalling deals. Even before this, metal deal sizes had
retreated from the high values seen in 2006 and 2007. The
severity of the recession led most Latin American metal
companies to switch their focus away from M&A deals and
make cash conservation their main priority.
In recent months, small, privately owned steel distributors
in Brazil merged to survive the economic turmoil. The
Sao Paulo steel distributor Grupo Goncalves Dias (GGD)
is the product of a three-way merger in December last
year between specialty steel vendors RCC, AcoMetal and
Domave. Merging was the only way the companies could
compete against large producers such as ArcelorMittal
(NYSE: MT) and Usiminas (BVSPA: USIM5), which do
their own distribution. GGD is keen on making acquisitions
in Brazil to expand its market further.
In April, Mexican steelmaker Grupo Villacero acquired
29.2% of the outstanding shares of local steel services and
distribution firm Grupo Collado (AMEX: COLLADO),
for an undisclosed amount. The deal strengthened Grupo
Villaceros market share in Mexico, and is expected to help
boost the companys steel production for the local market
and for distribution to the southern US.
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Current Environment
of state-run giant Codelco, which produces more than aquarter of Chiles copper, dent output. The output of copper
in concentrates dropped in February by 23.9% from a year
earlier to 153,900 tons.
Industry Focus
Aluminum
Global aluminum production climbed 5.1% to a four-
month high in May, as the worlds largest producer, China,
produced more metal, according to the International
Aluminum Institute (IAI). World aluminum output was 2.96
million tons in May, the highest since January, compared
with 2.81 million tons in April. However, in Latin America,
aluminum production slipped 4% to 1.05 million tons from
January to May this year, compared with 1.10 million tons
in the same period of 2008, as global demand faltered.
Steel
The progress of the US financial crisis into a global
economic crisis in late 2008 brought a global decline of
steel demand in late 2008. The metal industry responded
quickly by cutting production to ensure that supply matchesdemand. In 2008, the global steel industry produced 1.33
billion tons of steel, compared with 1.35 billion tons in
2007, according to the World Steel Association. Steel is
essential to economic growth as it provides energy delivery,
infrastructure, transport, housing and construction, and key
consumer goods.
ILAFA data shows Latin Americas steel production totaled
67.2 million tons in 2008, remaining flat since 2007. The
regions steel exports dropped by more than 15% to about
8.6 million tons in 2008, from 10.3 million tons in 2007,
due to higher demand in the region.
China is the worlds leading steel producer and an important
influence on the global steel market. The World Steel
Association estimates China produced 500.5 million tons
of steel in 2008, a slight increase of 1.1%, compared with
494.9 million tons in 2007. The countrys share of world
steel production continued to grow in 2008, accounting for
38% of world total crude steel. Concurrently, Brazil, the
largest steel producer in Latin America, saw production
slip by 0.3% to 33.7 million tons in 2008, from 33.8 million
tons the previous year.
Table 4: Latin American Steel Output
Country 2007 (million tons) 2008 (million tons) % Change
Venezuela 5.0 4.2 (16%)
Brazil 33.8 34.4 1.8%
Mexico 17.6 17.8 1.1%
Argentina 5.4 5.7 5.6%
Chile 1.7 1.5 (11.8)
Colombia 1.2 1.1 (8.3)
Peru 0.9 1.1 22.2%
Source: Latin American Iron and Steel Institute
Table 5: Top Steel Producers in Latin America
Country World Ranking 2008 (million tons) 2007 (million tons)
Brazil 9 33.7 33.8
Mexico 15 17.2 17.6
Argentina 28 5.5 5.4
Venezuela 36 4.2 5.0
World 1,326.5 1,351.3
Source: World Steel Association
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Industry Profile
Copper
The World Bureau of Metal Statistics estimates there
was 133,000 tons of excess copper in the global market
from January to April 2009, compared with a shortage of
161,000 tons a year earlier. Like those in other parts of the
world, the Latin American copper industry experienced the
effects of the economic downturn, and this was reflected
in the regions demand for copper, especially in Chile, the
worlds largest producer and exporter of copper.
Chile saw its copper exports fall by 4.7% to 5.4 million
tons in 2008, compared with 5.67 million tons in the
previous year, due to a fall in production in the second half
of the year. The countrys copper production also slipped,
by 4.1% to 5.33 million tons in 2008, from a year earlier, as
demand lagged due to the slowdown in the global economy,
according to the state copper commission Cochilco. The
figures show the copper industry was struggling to stay
afloat amid the economic downturn, since Chile generates
as much as 35% of the worlds copper.
However, the region will continue its role as the worlds
dominant supplier of copper, and as the most significant
location for new projects. Chiles state-run Codelco, the
worlds largest copper producer, plans to invest US$2
billion in its mines this year to reverse four years of
declining production. Moreover, the Chilean Governmentannounced at the beginning of the year that it would invest
US$1 billion in Codelco as part of an economic stimulus
package. The Governments move will provide a large
number of exploitation opportunities that, in turn, will
generate additional employment in the country. It is hoped
that the move will reverse the decline in the countrys
exports, which dropped 29% to US$1.89 billion in May,
compared with US$2.67 billion a year earlier, severely
affecting the metal industry, according to the Chilean
central bank.
Sector Investment
Despite the deepening economic crisis and deteriorating
global market, the Latin American metal industry is
attracting more investment interest. The board of Brazilian
steelmaker Gerdau has approved US$140 million in
investments to expand Peruvian subsidiary Siderperu. Last
year, the Brazilian steelmaker aimed to increase Siderperus
steel output to three million tons a year by 2013. The
company is in the midst of an expansion to 700,000 tons
per year from 400,000 per year, and aims to complete the
program in 2010. A number of key metal players see therecession as an opportunity, and are taking advantage of
the crisis to find ways to expand in areas outside Brazil.
Another Brazilian steelmaker, Usiminas, signed a
memorandum of understanding with the Minas Gerais State
Government in April, committing to invest R$19.1 billion
(US$9.47 billion) in the state over the next five years.
The companys main undertaking is a five-million-tons-a-
year slab plant in Santana do Paraiso City, near Ipatinga,
where the company has its headquarters. Regardless of
the slumping economy, the company plans to expand
production at its Ipatinga plant. With the expansion, the
plant will be producing an additional 500,000 tons a year
of heavy plate, 150,000 tons of hot rolled coil, 220,000
tons of cold rolled coil and 550,000 tons of galvanized coil
within five years.
Argentine aluminum producer Aluar Aluminio Argentino
(BUE: ALUA) announced that investment in expansion
would continue despite the global crisis. In February 2009,
the company asked shareholders for permission to issue
bonds worth US$300 million. The company will use some
of the proceeds to move ahead with expansion plans at its
plant in Chubut province, and expects to keep employees
on its payroll. It will complete the US$500 million second
expansion stage in Chubut that will add 96 electrolytic
cells. Aluar has already invested US$315 million to add72 cells. The expansion will increase aluminum production
for the domestic market to 105,000 tons a year. After the
next expansion phase, the companys capacity will total
515,000 tons a year.
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Market Trends & Outlook
The impact of the global financial crisis on the Latin
American economy is becoming increasingly apparent, with
a reduction in demand, local and foreign credit restrictions,
and the declining confidence levels of consumers and
investors. All these factors have slowed industrial activity,
in particular in the production chain, where Latin American
steel has a major share. The International Iron and Steel
Institute (IISI) estimates global steel production was 262.8
million tons in the first quarter of 2009, down 23% from
the same period of 2008.
The Latin American metal industry has felt the effects of the
financial crisis intensively since the fourth quarter of 2008,
particularly among its steelmakers. They have continued
to show restraint in industrial manufacturing investments,
hampered by a lack of available credit and a slowing influx
of capital. Chilean steel and iron ore producer CAP SA
(BSAN: CAP) announced in May it had postponed plans to
invest around US$2.2 billion to double its steel output, on
concerns that a slowing economy would dampen demand.
As the global credit crunch and economic slowdown
reduces demand, global investment in the industry islikely to fall, possibly by 55% to US$50 billion in 2009.
In Brazil, Companhia Vale do Rio Doce (BVSPA: VALE),
the worlds biggest iron ore producer, has already cut its
US$14.2 billion 2009 investment plan by 37%, as costs
decline and the dollar strengthens. Apart from the weak
economy, the cut in investment also reflects the price of
the companys cost-denominated currencies, a review of
equipment and implementation costs, delays in granting of
environmental licenses, and simplifications and changes in
some projects.
Steelmakers Cut Costs to Stay Afloat
Tightness in the Latin American steel industry and weak
domestic and international demand related to the global
economic slowdown is forcing steelmakers to cut costs.
After the weakness of the first half of 2009, measures by
steelmakers to cut their workforces, reduce production and
even close excessive capacity, is also ongoing. Leading
Brazilian steelmaker Usiminas (BVSPA: USIM3) is
considering postponing part of the first phase of construction
for its new five million tons a year Santana do Paraiso steel
plant, reducing capacity to 2.5 million tons a year. In April,
the company said it was investing US$9 billion in Minas
Gerais state over the next five years, including US$2.4
billion in 2009. As there is an over supply of steel and iron
ore on global markets, the company may scale back its
five-year expansion plans.
At the end of May, the Brazilian steelmaker dismissed
810 employees, or 6% of its workforce, shutting three of
its five blast furnaces because of the slump in demand. In
early May, the company, which operated at 50% capacity
during the first quarter, announced a voluntary layoff plan.
However, only 516 workers from the companys Ipatinga
plant in Minas Gerais state and the Cubatao plant in Sao
Paulo state chose to take part in the voluntary program,
which provides compensation approved by local unions.
The new job cuts will raise total layoffs since December
last year to more than 2,000. Among the companys main
shareholders, Nippon Steel (TSE: 5401) cut 700 jobs from
December to the end of February. The aim of the layoffs
was to reduce personnel costs to an all-time low of 10%
of total costs. The more than 300 cost-cutting programsin place at the plants have an annual savings potential of
R$1.2 billion (US$595.34 million), as the Latin American
steel industry tries to recover, albeit slowly.
Financial and environmental challenges are also forcing
foreign steel companies to reduce their expenses.
Luxembourg-based steel giant ArcelorMittal (NYSE: MT)
confirmed in July it had postponed the construction of a
US$600 million steel mill in Mexico. The company had
intended the steel plant to serve mainly the construction and
automotive sectors, using electrical steelmaking equipment
with a capacity of one million tons of billets year, and a
500,000-tons-a-year rolling mill.
In early June, US company Doe Run completely shut
down its La Oroya smelter in Peru. The company said it
was unable to continue operating because of the present
financial and environmental obstacles. The company
was on the brink of halting La Oroya in April, due to the
cancellation of the companys credit, which it needed to
continue purchasing mineral concentrates from mines in
central Peru for processing at La Oroya.
Economic Slump Dents Investment
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Market Trends & Outlook
A Grim Outlook for the Regions Steel Market
The tumultuous conditions of 2008 are continuing into
2009, as a challenging global macroeconomic environment
and tightened credit markets contribute to plummeting
demand for industrial manufacturing assets. The World
Steel Association estimates that steel demand worldwide
will fall to 1.019 billion tons in 2009, down 14.9%
from 2008. The US recession and slowdowns in other
economies have drastically reduced metal demand in Latin
America. Manufacturing and construction sectors, the
major consumers of metals in the region, have suffered
particularly severe declines.
In Latin America, demand for steel and steel products has
fallen sharply in tandem with the global manufacturing
slump. After years of growth, Latin Americas steel
production in the first quarter sank 40% year-on-year to
10.1 million tons, according to the ILAFA. In light of
the weak and uncertain economy, the IISI expects Latin
American steel production to slip by 8.3% to 45.5 million
tons in 2009, compared with 50.6 million tons in 2008.
The regions largest economy, Brazil, went into recession
in the first quarter, as the crisis slashed exports and local
demand for steel. In the first four months of 2009, Brazils
steel production dropped 41.7% from the same period of
the previous year to 6.73 million tons, according to theBrazilian Steel Institute. Domestic sales plummeted 42.5%
to 4.32 million tons, compared with 7.51 million tons over
the same period of 2008.
The negative growth of the metals market in the past
months indicates that the decline in Latin American metal
activity will most likely continue. In the final quarter of
2008, metal production dropped markedly due to the
global recession. Most Latin American metal companies
have announced significant production cuts in an effort to
align supply with reduced demand. The situation did not
change in the first half of 2009, and is unlikely to do so
until 2010, with most Latin American countries forecastinga fall in GDP this year.
Market Outlook
The intensification of the global financial crisis was the
trigger for a rapid deterioration in the world metal market
outlook. Over the next few years, Mergent expects a mixed
and volatile market for the Latin American metal industry.
The deepening downturn has already resulted in poor
financial earnings in the first half of 2009, with companies
losing much of their market value due to the worldwide
recession. Metal companies are expected to continue to
report lackluster financial performances this year, with
the overall outlook pointing to slowing or subdued metals
demand and a possible slow recovery later in the year.
After the flurry of big deals in the past two years, M&A
activity in the Latin American metal sector is likely to be
relatively quiet in 2009. In the face of continuing economic
uncertainty, credit from banks and sub-debt sources will
remain tight in the second half of this year. If the current
economic situation worsens in the coming months, the
metal industry will more than likely consolidate to weather
the present financial turmoil through corporate synergies.
The regions leading steel players may seek to leverage
their relative financial strengths to further their competitive
advantages. It is likely that steel will continue to contribute
a large proportion of deal value to the overall M&A total,
given the relatively lower level of consolidation compared
with the aluminum industry.
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Country ProfileBrazil
Bulk low price imported steel products and cheap foreign
imports have affected the Brazilian steel industry since
the Government removed the 16% import tariff in 2005.
The Brazilian Steel Institute has urged the Government to
reinstate import tariffs on steel products to reduce the entry
of lower-priced products. Major Brazilian steelmakers
Metalurgica Gerdau SA (BVSPA: GOAU3) and Companhia
Siderurgica Nacional (BVSPA: CSNA3) have also called
for tariffs against cheap steel imports. It is important for
Brazil to protect the metal sector from imports to safeguard
the domestic market and to guarantee employment.
The Government is contemplating reintroducing 12%
import tariffs on hot and cold rolled coil products in an effort
to protect the local steel industry. However, the volumes of
Brazilian steel imports should drop substantially because
of the high value of the US dollar against the Brazilian
real and because of tight credit. This will benefit Brazilian
distributors, as it will reduce the amount of steel on the
market.
Continuing financial market uncertainty, the economic
slowdown and a collapse in world metal demand have
created a challenging environment for the Brazilian metal
industry. According to the IBS, Brazil manufactured
five million tons of crude steel and 3.5 million tons of
rolled steel in the first quarter of 2009, drops of 42.1%
and 46.6%, respectively on the first three months of the
previous year.
Sector Performance
Industry performance this year will depend mostly on the
behavior of the local economy. Steel production in Brazil
continued to fall steadily amid the current international
financial crisis that has shaken the steel market. The IBS
estimates production of crude steel plummeted 42% in the
first quarter of 2009, compared with the equivalent period
of 2008, to five million tons. Production continued to
tumble in March, sinking 41.5% from the same month of
2008, in line with the decline in international demand.
Sector Overview
Table 6: Brazilian Steel Output and Sales
Source: Brazilian Steel Institute
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan/09
Production 2792 2494 2771 2783 2770 2715 2909 2366 2685 2790 2021 1800 1337
Domestic Sales 1840 1814 1922 1930 2004 1977 2074 2016 1964 1904 1413 934 950
International Sales 551 925 879 720 716 821 859 714 781 520 400 364 371
3000
000 tons
2000
500
2500
1000
1500
0
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Country Profile - Brazil
From October 2008, the three main consuming sectors of
the Brazilian steel industry automotive, civil construction
and capital goods have sharply reduced their orders due
to falling consumption and the unpredictable outlook for
2009. In December 2008, domestic sales of steel products
were down by 33% to 52% from the average levels
observed by IBS in January/October of the same year. The
results for January last year were practically the same as
those of December, and reflect the strong slowdown in the
activities of large steel-consuming sectors.
Leading Companies
Companhia Vale do Rio Doce (BVSPA: VALE)
Companhia Vale do Rio Doce (Vale), headquartered in
Rio de Janeiro, Brazil, operates as a diversified metals
and mining company worldwide. Its iron ore production
dropped 37% to 46.9 million metric tons in the first quarter
of 2009, compared with 74.5 million tons in the same period
of 2008. Production dropped as the company shut down
mines because of lower demand. Global demand for iron
ore is unlikely to pick up until the end of the third quarter
or beginning of the fourth quarter of 2009. However, the
company has adapted its production to current demand
levels and it is unlikely to make further output cuts in thenext few months.
During the quarter, the production of iron pellets registered
an even worse decrease, down 73.4% from the same period
last year to 2.885 million metric tons. To reduce costs and
adjust production, the company shut down its higher cost,
and lower quality mines, while maintaining operational
flexibility at other mines. Vale kept only three of its nine
pellet production units in operation in the first quarter
of 2009. Two other units restarted operation in March
following stronger demand from China for iron pellets.
Usinas Siderurgicas de Minas Gerais SA (BVSPA:USIM3)
Brazilian-based steel company Usinas Siderurgicas de
Minas Gerais SA (Usiminas) produces heavy plates, cold
strips, hot strips and coated products. The company reported
a net loss of R$112 million (US$55.56 million) in the first
quarter of 2009, compared with a net income of R$712
million (US$353.24 million) in the corresponding quarter
of the previous year. Revenue dived 25% to R$2,670
million (US$1,325 million) in the quarter, compared withR$3,553 million (US$1,763 million) in the first quarter of
2008. The current economic crisis that negatively affected
the Brazilian metal industry has caused a plunge in the
companys production.
A drastic reduction in domestic and international demand
has forced Usiminas to cut output to 50% of capacity and
renegotiate all raw material supply contracts to reduce costs
and stockpiles. Starting March 9, the Brazilian steelmaker
halted blast furnace production at its Cubatao mill in Sao
Paulo state for 90 days to cut costs. The stoppage reduced
pig-iron output by 270,000 metric tons, equal to 6% of the
plants annual capacity.
Market Outlook
The pressure to restructure the metal industry will intensify
the longer the financial crisis continues. The outlook for
metal demand is uncertain, despite the incentives that the
Brazilian Government has adopted to rekindle sectors
that have a strong impact on the economy, such as the
automotive and civil construction industries. The demand
for flat-rolled steel in the global market is likely to pick up
in the second half of 2009, and this should benefit Brazil,
where the steel industry is facing a challenging year.
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Country ProfileChile
Chile has been a leading copper producer since the
middle of the 19th century, and is now the worlds largest
producer and exporter of the metal. Copper consistently
accounts for more than half of the countrys total exports,
while copper revenues have made a vital contribution to
government revenues. However, the challenging condition
of the economy, resulting in low prices for the red metal,
hammered the Chilean metal industry in the first half of
2009.
The global crisis affected Chilean metal companies,
with a sharp decline in local and international demand.
The Federation of Chilean Industry estimates industrial
production dropping 9.6% year-on-year during February
2009, with the construction distribution industries
registered a drop of 23.5% from the equivalent month
of 2008. The products most affected were iron and steel,
production of which dropped by 50.5%, while production
of non-metallic minerals including ceramics, cement and
concrete decreased by 28.5%.
Sector Performance
In March 2009, Chiles industrial production slipped 7.1%
compared with the same month of 2008, while industrial
sales fell 8.3%, according to state-run INE. Chiles main
exports totaled 429,620 tons in March, down 5.9% from
the same month of the previous year. Central Bank of Chile
figures show copper exports totaled US$1.449 billion in
March, down 66% from the year earlier. The value of
Chiles copper exports slumped 52% to US$1.754 billion
in April 2009, compared with US$3.649 billion in the same
month a year earlier.
In 2008, copper export revenue was US$32.808 billion,
down 13%, compared with US$37.583 billion in 2007,according to Chiles Central Bank. Copper export revenues
have tumbled in tandem with prices for the red metal,
pummeled in recent months as demand fell due to the
global economic depression.
The Chilean Copper Commission (COCHILCO) estimates
Chile produced 5.33 million tons of the red metal in 2008,
down 4.1% compared with 2007. Chile exported 5.405
million tons of copper last year, or 4.7% less than in the
previous year. Copper output has fallen in recent years amid
falling ore grades at the largest mines and after production
interruptions at the massive Escondida mine, owned by
global diversified miner BHP Billiton (LSE: BLT). Output
also suffered at the worlds number one producer, Codelco,
after strikes by subcontract workers.
Leading Companies
CAP SA (BSAN: CAP)
CAP SA operates in the steel and mining sectors in
Chile, making steel products ranging from semi-finished,
bars and flat steel, tubes to by-products. The company
experienced a 75.4% year-on-year plunge in first quarter
of 2009 net profits to US$15.1 million, compared with
the corresponding quarter of 2008. Its revenue shrank to
US$305 million in the quarter, from US$489 million a year
earlier. The tumble in profits was due to low demand and
the consequence of the abrupt drop in economic activity,
both globally and locally. It was also due to the financial
crisis in the US that started at the end of September last
year.
The slowdown affected all CAPs businesses, reaching its
most critical point in the first quarter of 2009. Steel sales
dropped 48% to 183,340 tons in the first quarter, of which
368 tons were exported, 71% less than a year earlier. Iron
ore sales slipped 5% year-on-year to 1.28 million tons,
of which 1.36 million tons was exported, 11% less than a
year earlier. After the company shut down one of its blast
furnaces on November 5 last year due to low demand, its
Huachipato steel plant in region VIII ran at slightly more
than 50% capacity.
Molibdenos y Metales SA (BSAN: MOL)
Molibdenos y Metales SA, a shareholder-owned Chilean
corporation, processes molybdenum concentrates. It has
two plants one in San Bernardo, South of the capital
Santiago, and one in Cumpas in northern Mexicos Sonora
state, known as Molymex. The companys net profits
dropped 36% to US$22.5 million in the first quarter of
2009, from US$35.1 million in the corresponding quarter
of 2008, due to low metal prices.
Sector Overview
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Country Profile - Chile
In October last year, molybdenum was trading at over
US$30 per pound, but the price has sunk sharply in tandem
with that of copper and other commodities on demand fears
amid the financial crisis. The company expects the price of
the metal used to harden steel will remain around US$10
per pound in 2009 and estimates that demand will fall 20%
this year. At the end of April, the company announced
plans to construct a plant for molybdenum processing at
Hohhot City, the capital of Inner Mongolia Autonomous
Region in China. Upon receipt of an environmental permit
from the authorities, the company is scheduled to invest
US$80 million in the plant.
Market Outlook
The outlook is bleak for the Chilean metal works industry
for the rest of the year. Demand for steel is likely to remain
weak in 2009 because of the continued reduction of steel
inventories. Steel prices will remain weak due to the steel
industrys low capacity utilization and costs being reduced
by lower prices of input materials. Nevertheless, a majority
of Chilean metal producers could still achieve a lower net
debt position at the close of the second quarter of 2009
on an anticipated decline in working capital needs and a
low level of capital expenditure amid the present market
conditions.
Despite the economic crisis, Cochilco expects copper
output to reach 5.5 million tons in 2009, 3.7% higher
than in the previous year. The increase would be due to
a jump in capacity at the Collahuasi mine, the ramp-up of
state copper company Codelcos Gaby mine and higher
output at BHP Billitons Spence mine and 57.5%-owned
Escondida mines. In 2010, copper output is likely to grow
by 6.3% to 5.75 million tons, thanks to expected increases
by Codelcos Andina and El Teniente mines, Escondida,
Los Pelambres and Freeport-McMoRan Copper and Golds
(NYSE: FCX) 80%-owned Candelaria operation, and the
start of sulfide mining at Tecks 90%-owned (TSX: TCK)
Andacollo mine.
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Country ProfileMexico
As the global economic slump worsened and strained the
Mexican economy further, Mexico saw its metal industry
weaken significantly. The industry was also hit by the H1N1
influenza (swine flu) epidemic that affected all sectors of
the economy. This is set to affect GDP growth, which is
likely to be lower than the earlier National Confederation
of Industrial Chambers of Mexico (CONCAMIN) estimate
of around 6%.
Also affecting the industry was the countrys crime wave,with gangs becoming more daring and sophisticated,
hijacking trucks and trains, and stealing massive loads of
steel. With significant government and police resources
tied up fighting the drug cartels, thieves ramped up their
efforts to steal freight. The Mexican Steel Chamber
reports robberies skyrocketed by 250% in 2008, with
12,500 tons of steel carted off by thieves. In 2008, losses
totaled MEX$150 million (US$11.08 million) and the pace
accelerated in 2009.
Mexicos third largest steel producer, Altos Hornos de
Mexico SAB de CV (MXN: AHMSA), or AHMSA, was
the victim of nearly 40 robberies after the beginning of2008. The hijackings happened mostly along one stretch
of deserted road between the cities of Monterrey and
Monclova in northern Mexico. Rising unemployment due
to the economic downturn has left legions of young men
out of work, and this has aggravated the crime problem.
Sector Performance
The Mexican national statistics bureau INEGI estimates
the countrys GDP in the first quarter of 2009 slipped by
8.2% year-on-year compared with the same period of
2008. GDP of secondary activities fell 9.9%, with that
of the manufacturing sector sinking by 13.8%, whileconstruction industry GDP shrank by 7.7%. The Mexican
economy is driven by resources and manufacturing, and
the global downturn has slashed demand for steel, pushing
the countrys economy into reverse.
In the first three months of 2009, Mexican steel production
fell 35% to 3.103 million tons, compared with 4.757
million tons in the equivalent period the previous year,
according to the Mexican steel association CANACERO.
National steel consumption totaled 3.779 million tons, a
plunge of 41% from 6.444 million tons in the first quarter
of 2008. This was due to the global financial crisis reducing
demand, and the swine flu pandemic affecting the metal
industrys performance as steel firms suspended production
from May 1 to May 5 due to the flu outbreak.
Leading Companies
Altos Hornos de Mexico SAB de CV (MXN: AHMSA)
AHMSA, a Mexican-based steel company, specializes
in the production of basic raw materials and finished
products. It has corporate offices in Monclova, in the center
of the state of Coahuila, 155 miles from the US border. The
companys net income sank 84.6% to MEX$136 million
(US$10.04 million) in the first quarter of 2009, compared
with MEX$885 million (US$65.35 million) in the same
quarter of 2008. Sales for the quarter fell 37.5% to US$436
million, compared with US$698 million in the first quarter
of 2008. The results reflected the worldwide recession,
which caused a drop of at least 50% in operation levels and
placed the whole steel industry in a serious situation.
Grupo Simec SAB de CV (AMEX: SIM)
Grupo Simec SAB de CV, incorporated in August 1990,
is a diversified manufacturer, processor and distributor of
special bar quality (SBQ) steel and structural steel products.
The companys net profit dropped 26% to MEX$440
million (US$32.49 million) in the first quarter of 2009,
compared with MEX$592 million (US$43.71 million)
in the equivalent quarter of the previous year. Net sales
dropped 30% to MEX$5.081 billion (US$375.18 million),
compared with MEX$7.288 billion (US$538.14 million)
in the first quarter of 2008, due to lower shipments. Totalsales outside of Mexico in the first quarter shrank 59% to
MEX$2.222 billion (US$164.07 million), compared with
MEX$5.423 billion (US$400.43 million) in the same
period of 2008. However, total Mexican sales grew 53%,
from MEX$1.865 billion (US$137.71 million) in the first
quarter of 2008 to MEX$2.859 billion (US$211.11 million)
in the equivalent quarter of 2009. Shipments of finished
steel products dropped by 239,000 tons to 506,000 tons
compared with 745,000 tons in the first quarter of 2008.
Sector Overview
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Country Profile - Mexico
Overall quarterly gross profit totaled MEX$970 million(US$71.62 million), compared with MEX$1.237 billion
(US$91.34 million) in the first quarter of 2008. Gross
profit as a percentage of net sales was 19%, compared
with 17% in the same period 2008. Operating profit fell
by 56% to MEX$385 million (US$28.43 million) from
MEX$878 million (US$64.83 million). Operating profit
as a percentage of net sales was 8% in the first quarter,
compared with 12% in the same period 2008. A 32%
decline in shipments compared with the same period of the
previous year affected the results.
Market Outlook
In the first half of 2008, most Mexican steel companies
enjoyed steady demand and record earnings, despite
tightening credit markets. However, in the fourth quarter
of 2009 the industry encountered falls in steel prices,
demand and volumes. Battered by the growing global
financial crisis, construction activity began to decline,
accompanied by a collapse in demand for durable goods
such as automobiles, which affected the metals industry.
This decline is likely to continue throughout 2009.
With the world economy remaining in recession, Mexican
steel consumption is set to remain subdued in 2009, with
key consuming industries cutting production further.
CANCERO estimates steel consumption slid 5% in 2008to 18.5 million tons, and expects it to drop by up to 8%
in 2009 to 17 million tons. Reduced demand and falling
steel prices will put pressure on Mexican steel companies
further, threatening their profits, margins and liquidity in
the coming months.
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Country ProfilePeru
The Peruvian metal works industry suffered greatly in
the first six months of 2009, after grappling with a weak
economy and falling demand for its products. The Ministry
of Economy and Finance of Peru estimates the economy
grew by more than 9% in 2008, but may grow only by
about 5% in 2009, as prices for metal and mineral exports,
the Governments biggest source of revenue, fall further.
In late 2008, Peru announced a US$3 billion stimulus
package to boost construction and create jobs to combat
the downturn. The stimulus package, designed to offsetthe fallout from the global economic crisis, should ensure
growth of at least 5% in 2009.
The global economic downturn was the cause of a major
decline in industrial and manufacturing activities, which
led to a reduction in the demand for steel in Peru and a
slump in prices. Several companies have already postponed
projects in the Andean country, including Madrid-based
Repsol YPF (BM: REP) and Mexican-controlled Southern
Copper Corp (BVL: PCU), which was forced to scale back
work at its Tia Maria project. The Ministry of Economy and
Finance expects that this year exports from Peru, one of the
worlds leading metal producers, will slide 21% from therecord US$31 billion posted in 2008, while imports will
contract by 3.6%.
In the first half of 2009, metal volumes were down
significantly, as market conditions remained weak. Several
companies laid off employees because of declining demand
for steel worldwide, with thousands of workers in the
countrys steel and mining sector losing their jobs as steel
prices sank and companies delayed investment because
of economic uncertainties. The Peruvian labor federation,
Confederacion Unitaria de Trabajadores, estimates 5,460
mining and steel workers lost their jobs after the start of
November last year as sinking global steel prices hammered
the metal industry. About 600 workers were laid off atEmpresa Siderurgica Del Peru SAA (BVL: SIDERC1).
According to the federation, Corporacion Aceros Arequipa
SA (BVL: CORAREC1), Perus largest steelmaker, told
1,500 people to stop working.
Sector Performance
Perus Ministry of Energy and Mining (MEM) estimates
the countrys copper output slipped 1.33% in March 2009,
compared with the same month of 2008, to 104,462 tons,
largely due to weak copper prices. The drop in production
and prices of metal exports was also the result of the global
economic slowdown. Perus metal shipments account for
more than half of total exports and are the Governments
largest source of revenue.
Since 2008, copper prices have dropped more than 60%
as contracting economies slowed global demand for the
metal. World copper spot and future prices also slid and inMay London Metal Exchange transaction prices averaged
US$2.06 a pound, taking the year-to-date average to
US$1.74, down from US$3.15 in 2008. Copper prices are
likely to stay weak in the first half of 2010, but could see a
slight recovery in the second half, as copper supply tends to
be relatively tighter than that of other base metals.
Leading Companies
Empresa Siderurgica Del Peru SAA (BVL: SIDERC1)
Empresa Siderurgica Del Peru SA (Siderperu), based in
Santa Anita, is an iron and steel company that manufacturessteel products. It is a subsidiary of Gerdau SA (BVSPA:
GOAU3), and serves the construction, mining, and
industrial sectors. The company posted a loss of S/.190
million (US$61.66 million) in the first quarter of 2009,
compared with a net profit of more than S/.67.5 million
(US$21.91 million) in the equivalent quarter of 2008. The
loss was mainly due to low prices and demand for steel.
Sales slipped to S/.318 million (US$103.20 million),
compared with S/.362 million (US$117.48 million) in the
year earlier period.
In May, the board of Brazilian steelmaker Gerdau approved
US$140 million in investments to expand Peruvian
subsidiary Siderperu. Before the global financial crisis, thecompany aimed to increase steel output to 1.5 million tons
a year in 2011, and three million tons a year by 2013. The
Peruvian steelmaker is in the midst of an expansion from
400,000 tons per year to 700,000 tons per year in 2010.
Corporacion Aceros Arequipa SA (BVL: CORAREC1)
Corporacion Aceros Arequipa SA, produces corrugated
steel, steel sections and bars for the metal mechanics, civil
Sector Overview
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Country Profile - Peru
engineering and metal industries. The company saw a netloss of S/.197 million (US$63.93 million) in the fourth
quarter of 2008, compared with a net loss of S/.9.88 million
(US$3.21 million) in the same period of 2007. Sales in the
quarter climbed 8% to S/.391 million (US$126.89 million),
compared with S/.362 million (US$117.48 million) in the
fourth quarter of the previous year, but costs also picked up
by 29% to S/.365 million (US$118.45 million), compared
with S/.282 million (US$91.51 million) in the equivalent
quarter of 2007.
The Peruvian steelmaker halted production at its Pisco
and Arequipa regional plants from November 24, 2008,
and throughout all of December to carry out maintenance.
It had sufficient stocks to continue supplying the marketduring the maintenance period. The company has resumed
work at the Arequipa and Pisco plants and is operating at
90% capacity.
As of June this year, the steelmaker had boosted output by
nearly 300,000 tons a year, thanks to the newly installed
transformer at its Pisco plant. The additional production
will boost output from the current 550,000 to 580,000
tons to roughly 850,000 tons a year. Although the furnace
at the Pisco plant is considered large, the previous small
transformer limited production. The company thinks that the
steel market outlook is more positive because of statements
made by the countrys president urging Peruvians to investin housing and infrastructure.
Market Outlook
The Peruvian economy is likely to continue to slow this
year, with the economic pain extending into next year if the
global slowdown intensifies. The International Monetary
Fund (IMF) last year estimated that Perus economic growth
would likely slow to 6% this year. Economic growth in
2010 and beyond should average 6% or more a year. The
outlook reflects the slowdown in the global economy and
tighter financial conditions, which will affect the Peruvian
metal market. Like those in other countries, the Peruvian
economy is expected to be hit hard by declining metal prices and demand, since the metal industry contributes
more than half of the countrys total exports and is one of
the Governments biggest revenue earners.
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Country ProfileVenezuela
In the past two years, Venezuelan President Hugo
Chavez has nationalized major steel, cement, electricity,
telecommunications and oil projects in a bid to expand state
control of the economy. Towards the end of May this year,
the Government took over several iron and other metal
companies as part of its drive to exercise control over the
nations mineral wealth industries. The companies include
Venezuelan steelmaker Siderurgica Venezolana SA (CAR:
SVS), Tubos de Acero de Venezuela SA, also known as
Tavsa, and Complejo Siderurgico de Guayana CA, orComsigua. Also affected was iron producer Materiales
Siderurgicos SA, or Matesi. Matesi is controlled by
Venezuelas Materiales Siderurgicos, a company 50.2%
owned by Tenaris (NYSE: TS) and 49.8% by Sidor. The
Government argues the move will help the country reduce
its reliance on imports and will boost local industry.
Venezuela expressed interest late last year in buying a
minority stake in the Venalum aluminum smelter that six
Japanese companies, which together hold a 20% stake
in Venalum, announced in June that they would sell.
The decision to sell came after a long dispute with the
Government over prices, delays in shipments, and lowprices for the metal. Venalum is 80% owned by Venezuela
with the other shares distributed among Showa Denko
KK (TSE: 4004), Kobe Steel Ltd (TSE: 5406), Sumitomo
Chemical Co Ltd (TSE: 4005), Mitsubishi Materials Corp
(TSE: 5711), Mitsubishi Aluminum and Marubeni (TSE:
8002). The Government assessed the value of the Japanese
companies 20% stake and was expected to offer a price.
Sector Investment
Brazilian construction company Andrade Gutierrez
proposed to invest US$120 million in a new steel plant
in Venezuelas eastern Bolivar state. Brazils presidentand his Venezuelan counterpart Hugo Chavez signed
an agreement in October 2008 to build and operate a
US$1.8 billion plant that will produce 1.5 million tons of
steel a year. The plant will complement production from
local steelmaker Sidor, making steel micro alloys for the
military and construction sectors that Sidor currently does
not manufacture. When it begins operating in the fourth
quarter of 2011, it will increase Venezuelas annual liquid
steel output by six million tons. The country will also be in
a position to manufacture a whole series of products to spur
the development of the domestic steel industry.
In the second half of 2008, Venezuela and Cuba signed an
agreement to create a joint steelmaking company, Aceros
del Alba CA, located in the eastern state of Monagas,
to make stainless steel products. Venezuela will invest
US$1.5 billion in the plant, which is intended to produce
500,000 tons of stainless steel per year. Venezuela will
own 51%, while Cubas Acinox Steel Industrial Group will
own 49%. The two countries will also build a ferronickel
plant in Cuba to provide the raw material for the steel plant.
The Cuban plant will be 51% owned by Cuba and 49% by
Venezuela. Construction of the steelmaking plant began in
2008, and is expected to be completed in 2011.
Leading Company
Siderurgica de Orinoco (Sidor)
Sidor manufactures and distributes steel products and is
the largest flat and long steel producer in Venezuela, with
an annual capacity of about 4.5 million tons of finishedsteel products. On May 7, 2009, the company became a
subsidiary of Corporacion Venezolana de Guayana (CVG),
after Argentine-controlled steel company Ternium SA
(NYSE: TX) agreed to compensation of US$1.97 billion
for its Sidor shares and transferred its 59.7% share of one
of Latin Americas largest steel plants. The Venezuelan
Government, through its heavy industries state holding
group CVG, has already paid US$400 million in cash for
the shares and will pay for the rest in two tranches. The
Government will pay the first tranche, US$945 million, in
six equal quarterly installments, and the balance in October
2010.
Before President Chavez ordered the takeover, Ternium
controlled 60% of Sidor, the countrys top steel producer,
while the Government owned 20%, and workers controlled
the remaining 20%. After Sidor was nationalized, there was
labor unrest, with the Government reprimanding some of the
workers for making what it called unreasonable demands.
In the first two months of the year, output plummeted 25%
against the same period in 2008, as the company struggled
to introduce new management.
Sector Overview
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Country Profile - Venezuela
Market Outlook
In the first quarter of 2009, the Venezuelan economy rose
at its slowest pace, 0.3%, since 2003, as factory output
contracted and export revenue declined, following a plunge
in oil prices. Banco Federal CA expects the economy to
contract 2% this year, as the fastest inflation rate in Latin
America erodes purchasing power and diminishes the impact
of government spending. Government expropriations in the
cement, oil, banking and steel industries are discouraging
private investment, which does not help the economy.
President Chavez cut the federal budget by 6.7% and, to
cover a budget deficit, raised sales tax and announced plans
to sell US$15.8 billion worth of domestic bonds this year.
The 2009 outlook for the Venezuelan steel industry is grim,
with the country affected by the world economic crisis and
compounded by an exodus by foreign investors following
nationalization of many of the countrys industries. As steel
prices remain unfavorable, demand is unlikely to improve
this year while the global manufacturing slump continues.
The presidents decision to nationalize Venezuelas steel
companies has dealt another blow to the steel industry and
to foreign companies, some of which have lost a great deal
of assets.
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Currency Conversion Table
Source: Federal Reserve Bank of New York
Note: Base currency is United States Dollar (USD)
Currency exchange rates as of July 10, 2009
Currency Unit Units per US$ US$ per unit
United States Dollars (US$) 1 1
Argentina Pesos (ARS$) 3.80686 0.26268
Brazilian Reals (R$) 2.01566 0.49612
Chile (CLP) 554.118 0.001805
Colombia (COL$) 2,135.59 0.0004683
Mexico Pesos (MEX$) 13.54324 0.07384
Peru (S/.) 3.08151 0.32452
Venezuela (Bs) 2,152.30 0.0004646
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The Scope Of This Report
This report looks at the metal works industry in Latin America, with a focus on Brazil, Chile, Mexico, Peru and Venezuela.
This report aims to paint a picture of the current environment and industry developments in a number of industry segments
using available data and examination of key public companies in each segment whose core services fall into the above
categories. Some reported key financial results are presented in the comparative data tables on proceeding pages.
Research analysts draw on a range of credible industry and company data sources as well as news and information
services to research and analyze the current trading environment, industry landscape and market trends and outlook for
a particular sector. Primary sources are used, unless otherwise indicated, and include company data, e.g. annual reports
and company financial results; macroeconomic and trade data; data and information from global and country regulatory,
industry and trade bodies; government data; and reports from industry organizations and private research organizations.
Industries covered by the industry reports are defined by standard industry classification systems and leading companies
are identified on this basis. The following SIC codes are relevant to the industry: 3312 (Steel Works, Blast Furnaces
(Including Coke Ovens) and Rolling Mills); 3316 (Cold-Rolled Steel Sheet, Strip and Bars); 3317 (Steel Pipes and
Tubes); 3331 (Primary Smelting and Refining of Copper); 3334 (Primary Production of Aluminum); 3339 (Primary
Smelting and Refining of Non-ferrous Metals, except Copper and Aluminum); 3341 (Secondary Smelting and Refining
of Non-ferrous Metals); 3353 (Aluminum Sheet, Plate and Foil).
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Key References
Global and Regional
Asia-Pacific Economic Cooperation (APEC)
APEC is a forum to facilitate economic growth, cooperation, trade and investment in the Asia-Pacific.
http://www.apec.org/
Council on Hemispheric Affairs(COHA)
Founded in 1975, COHA, a non-profit, tax-exempt independent research and information organization, was established
to promote the common interests of the hemisphere, raise the visibility of regional affairs and increase the importance of
the inter-American relationship, as well as encourage the formulation of rational and constructive US policies towards
Latin America.
http://www.coha.org/
International Federation of Chemical, Energy, Mine and General Workers Unions (ICEM)ICEM is a global trade union that monitors and negotiates global agreements with multinational companies, mainly on
workers rights, equality at work, standards of health, safety and environmental issues worldwide.
http://www.icem.org/
International Iron and Steel Institute (IISI)
IISI is an international organization of 190 steel producers established to provide a forum to address the major strategic
issues and challenges it faces on a global basis.
http://www.worldsteel.org/
International Aluminum Institute (IAI)
IAI is the Global Forum of the worlds Aluminum Producers and produce timely publications and reports, compile key
industry statistics, host events and provide a global meeting point for its members.
http://www.world-aluminium.org/
International Labor Organization (ILO)
Founded in 1919, the ILO is a non-profit organization that aims to promote human rights at work, encourage decent
employment opportunities, enhance social protection and strengthen dialogue in handling work-related issues.
http://www.ilo.org/
International Monetary Fund (IMF)
The IMF is an international organization of 184 member countries established to promote international monetary
cooperation, exchange stability, orderly exchange arrangements, foster economic growth and high levels of employment,
and promote temporary financial assistance to countries to help ease balance of payments adjustment.
http://www.imf.org/
International Copper Study Group (ICSG)
ICSG, established in 1992, in an intergovernmental organization that serves to increase copper market transparency and
promote international discussions and cooperation on issues related to copper.
http://www.icsg.org/
Latin American Iron and Steel Institute (ILAFA)
ILAFA is a civil non-profit non-governmental international organization that gathers and looks after the interests of Latin
American iron and steel industry and companies.
http://www.ilafa.org/
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London Metal Exchange (LME)
The London Metal Exchange provides a global forum on managing the risk of future price movements in non-ferrous
metals. Prices published on LME are seen as a true reflection of demand and supply by trade and industry.
http://www.lme.co.uk/
Metals Economics Group (MEG)
Founded in 1981, MEG provides research data and analytical tool on global minerals exploration, development, andproduction, as well as strategic planning issues and acquisitions activity.
http://www.metalseconomics.com/
The Economic Commission for Latin America and the Caribbean (ECLAC)
Established in 1948, the ECLAC aims to contribute to the economic development of Latin America, coordinate efforts,
and reinforce economic relationships among countries. Headquartered in Santiago, Chile, it is one of five regional
commissions of the United Nations.
http://www.eclac.org/
US Geological Survey (USGS)
An independent fact-finding government agency of the United States Government that collects, monitors, analyzes and
provides scientific understanding about natural resource conditions, issues and problems in the US.
http://www.usgs.gov/
World Steel Association
The association is an international trade body for the iron and steel industry, representing about 180 steel producers
(including 18 of the worlds 20 largest steel companies), national and regional steel industry associations, and steel
research institutes.
http://www.worldsteel.org/
Brazil
Associacao Brasileira do Aluminio (ABAL)
Founded in 1970, ABAL is the Brazilian Aluminum Association to assist development in the aluminum industry together
with public authorities and plans that cover the industry in the country.
http://www.abal.org.br/
Associacao Nacional dos Fabricantes de Veiculos Automotores (Anfavea)
Anfavea, founded in 1956, brings together manufacturers of autoveiculos (cars, light commercial, trucks, buses) and
agricultural machines (tractors with wheels and mats, harvesters and backhoe) with industrial plants in Brazil.
http://www.anfavea.com.br/
Departamento Nacional de Producao Mineral (DNPM)
The National Department of Mineral Production was established as a self-governing body in Brazil to provide information
and data on mining or mineral production in the country.
http://www.dnpm.gov.br/
Instituto Brasileiro de Siderurgia (IBS)
IBS, the Brazilian Steel Institute, founded in 1963, undertakes the goal of bringing together and representing Brazilian
steel companies, supporting their interests and promoting their development.
http://www.ibs.org.br/
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Chile
Comision Chilena del Cobre (COCHILCO)
COCHILCO is a national organization that provides reliable information to sustain and reinforce the Chilean mining
industry, except for coal, oil and gas.
http://www.cochilco.cl/
Federation of Chilean Industry (SOFOFA)
SOFOFA, founded in 1883, is a private, non-profit trade association representing the views and interests of Chilean
industry.
http://www.sofofa.cl/
Instituto Nacional de Estadsticas (INE)
The National Statistics Institute is one of Chiles more prominent institutes, and has carried out several censuses, surveys
and studies about the national reality since 1843.
http://www.ine.cl/
Mexico
National Confederation of Industrial Chambers of Mexico (CONCAMIN)
CONCAMIN is an umbrella organization that represents industrial chambers of commerce throughout Mexico.
http://www.concamin.org.mx/
Camara Nacional de la Industria del Hierro y el Acero (CANACERO)
The Mexican Steel Producers Association is a self-governing institution that brings together steel producers and
transformers in Mexico and consists of 63 associated companies.
http://www.canacero.org.mx/
Instituto Nacional de Estadstica Geografa e Informatica (INEGI)
The National Institute of Statistics, Geography and Information is a subsidiary of the Secretariat of Property and Public
Credit, which provides statistical and geographic information on the territory, the pollution and the economy of Mexico.
http://www.inegi.gob.mx/
Peru
Commission of Promotion of Peru for the Export and the Tourism (PROMPERU)
PROMPERU develops and promotes exports and tourism activity in the country.
http://www.promperu.gob.pe/
Instituto Nacional de Estadstica e Informatica (INEI)
The Peruvian National Institute of Statistics reports on the state of the Peruvian economy, and social environment and
helps monitor changes in Canadian society and industry.
http://www.inei.gob.pe/
Ministry of Energy and Mining (MEM)
The Ministry of Energy and Mines of Peru is a ministry of the Peruvian Government responsible for managing the energy
and mining sectors of Peru.
http://www.minem.gob.pe/
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Ministry of Economy and Finance of Peru
The ministry in charge of the planning and execution of the economic policies of the Peruvian Government with the
goal of optimizing the economic and financial activities of the state, managing macroeconomic activity, and achieving
sustainable growth of the nations economy.
http://www.mef.gob.pe/
Venezuela
Association of Metallurgical Industrialists and Mining of Venezuela (AIMM)
AIMM is a civil association that represents the industrial companies of the metallurgical and mining sector in
Venezuela.
http://aimm-ven.org/
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Industry Report - Metal Works - July 2009Comparative Company Data | LATIN AMERICA
Notes to Comparative Data
- All figures are in United States dollars.
- All figures are as r eported by the company.
- N/A = Data Not Available.
- Companies ranked by total revenue for the full year most r ecently reported.
Definitions
- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.
- EBITDA = Earnings before interest, taxes, depreciation and amortization.
- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.
- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.
- Long Term Debt = Debt due to be paid at a date more than one year in the future.
- Return on Equity = The companys earnings divided by its equity (book value).
- Profit Margin = The companys net income as a percent of revenues.
27
Company Country Ticker Exchange Primary SIC Other SICs
Metalurgica Gerdau SA Brazil GOAU3 BVSPA 3312 3315 5051 7374 2421 212
Usinas Siderurgicas de Minas Brazil USIM3 BVSPA 3312 3441 2813 2819
Companhia Siderurgica Nacional Brazil CSNA3 BVSPA 3312 1411 4911 4011
Navarino SA Chile NAVARINO BSAN 3339 3398 7922 4449 6719
Grupo IMSA SA de CV Mexico IMSA MEX 3399 3316 3325 3711 3714 5039
Siderar SAIC Argentina ERAR BUE 3312 3316
Molibdenos Y Metales SA Chile MOLYMET BSAN 3313
Caraiba Metais SA Brazil CRBM3 BVSPA 3331 3351 2819
ArcelorMittal Inox Brasil SA Brazil ACES3 BVSPA 3312
Madeco SA Chile MADECO BSAN 3351 3354 3085 3086 3081
Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3
Metalurgica Gerdau SA $17,174,489,762 $11,026,819,948 $9,161,057,178 $2,903,990,463 $2,519,499,883 $2,229,180,601
Usinas Siderurgicas de Minas $7,755,872,651 $5,813,775,697 $5,577,011,504 $2,902,288,920 $1,925,620,698 $2,418,608,391
Companhia Siderurgica Nacional $6,418,503,226 $4,233,373,449