Companhia Siderúrgica Nacional
Encyclopedia
Companhia Siderúrgica Nacional (CSN) (BM&F Bovespa: CSNA3 / ) is the second major steel-maker company in Brazil
. Its main plant is located in the city of Volta Redonda
, in the state of Rio de Janeiro
. Its current CEO is Benjamin Steinbruch.
Companhia Siderúrgica Nacional is the largest fully integrated steel producer in Brazil and one of the largest in South America in terms of crude steel
production. CSN’s Chief Executive Officer is Benjamin Steinbruch. Its annual crude steel capacity and rolled product capacity are 5.6 million and 5.1 million tons, respectively. It produces a broad line of steel products, including slabs, hot- and cold-rolled, galvanized and tin
mill products. Its products are used by the distribution, packaging, automotive, home appliance and construction industries.
CSN
accounted for approximately 49% of the galvanized steel products sold in Brazil. In 2004, it accounted for approximately 98% of the tin mill products sold in Brazil. It is one of the world’s leading producers of tin mill products. CSN is also unique in owning its own source of iron
ore.
", by Brazilian president, Getulio Vargas
, after an agreement between the American and the Brazilian governments (the Washington Accords) for the construction of a facility that would provide steel for the Allies during the Second World War and later be an aid for Brazil's development. It began its operations in 1946, under Eurico Gaspar Dutra
's presidency.
CSN was a Brazilian corporation incorporated in 1941 pursuant to a decree of Brazilian President Getúlio Vargas. The Presidente Vargas Steelworks, located at Volta Redonda, in Rio de Janeiro State, started production in 1946. It initially produced coke, pig iron castings and long products. Two major expansions were undertaken at the Presidente Vargas Steelworks during the 1970s. The first, completed in 1974, increased installed annual production capacity to 1.6 million tons of crude steel. The second, completed in 1977, raised capacity to 2.4 million tons of crude steel.
In 1993, CSN adopted a capital improvement program, which was revised and extended in 1995. The goals of the capital improvement program were to increase the annual production of crude steel, to improve the productivity of the production units and the quality of the products, and to enhance the environmental protection and cleanup programs. Since February 1996, all production has been based on the continuous casting process, rather than ingot casting, an alternative method that results in higher energy use and metal loss. From 1996 through 2002, CSN spent the equivalent of US$2.4 billion under the capital improvement program and for operational capacity maintenance, culminating with the revamping in 2001 of Blast Furnace
#3 and Hot Strip Mill #2 at the Presidente Vargas Steelworks that increased the annual production capacity to 5.6 million tons of crude steel and 5.1 million tons of rolled products, from approximately 5.0 million tons in each case at the beginning of 2001.
In 2005, CSN set its sights high: To reinforce its position as the largest iron-mining operation in the country,through its controlling stake in Companhia Vale do Rio Doce
(CVRD), and to join the exclusive global club of the world's largest suppliers of the commodity.
In January 2004, the CSN board announced the approval of investments up to US$820 million to be made through 2007, for:
• The expansion of the annual production of the Casa de Pedra iron ore mine from 15.5 million tons in 2004 to approximately 40 million tons.
• The expansion of the coal
terminal adjacent to the Sepetiba
Port facilities to enable annual exports of up to 30 million tons of iron ore.
• The construction of a six million-ton pellet plant.
CSN also explored opportunities for acquisitions or mergers abroad in order to expand output. It proposed to build a new steel plant which would have doubled current annual production of 5.8 million tons of raw steel, at an estimated investment cost of US$2.6 billion, assuming prospecting results pan out. Seeking to maintain focus on its program of acquisitions and growth, CSN set aside $520 million for investments in 2005.
's government, during the National Program for Privatization led by the federal government, started by Fernando Collor and continued by Franco.
Its main factories are located in Volta Redonda, at the Vale do Paraíba region, southern Rio de Janeiro
state, and its iron mines at Congonhas and Arcos, both of them cities in the Minas Gerais state, and the coal mines at Siderópolis, Santa Catarina state.
During almost 50 years of state control, the Brazilian flat steel sector was coordinated on a national basis under the auspices of Siderbrás, the national steel monopoly. The state had far less involvement in the non-flat steel sector, which has traditionally been made up of smaller private sector
companies. The larger integrated flat steel producers operated as semiautonomous companies under the control of Siderbrás and were individually privatized during 1991 to 1993.
sales. In response to the increased production and exports of steel in many countries, anti-dumping, countervailing duties
and safeguard measures have been imposed by countries which represent some of the main markets for CSN exports. Those, and similar, measures could provoke an imbalance in the international steel market, which could adversely affect CSN's exports.
river, which runs through the city of Volta Redonda. Much of the water is recirculated, and some, after processing, is returned to the Paraíba do Sul river. A law passed in 1997 permits the Brazilian government to charge for water usage from water courses.
Brazilian government policies in the energy sector may have an adverse impact on the cost or supply of electricity for CSN aluminum-related and ferroalloy operations.
Tax and Social Security Reforms May Affect the Brazilian Economy, and May Impose a Higher Tax Burden on CSN.
The Brazilian Federal Congress has recently amended the Brazilian Constitution to modify certain aspects of the social security and tax
system. Moreover, the Brazilian Federal Congress is currently reviewing additional bills which would introduce further changes to Brazil's tax and social security laws. Such reforms may affect Brazilian economic conditions generally, and may impose a higher tax burden on CSN. If CSN is not able to pass the cost of such potential higher tax and social security burdens to customers, their profit margins may be adversely affected.
Code and are subject to the laws, rules and regulations promulgated pursuant to the Constitution and the Code. Under the Brazilian Constitution, all mineral resources belong to Brazil. CSN mining activities at the Casa de Pedra mine are based on holding of a Manifesto de Mina, which gives them full ownership over the mineral deposits existing within their property limits. CSN mining activities at the Bocaina
mine are based on a concession which gives them the right to mine for as long as ore reserves exist.
of the real can adversely affect CSN earnings. Historically, emerging markets, including Brazil, have experienced devaluation
of their currency at various times. In 2002, the Brazilian exchange rate fluctuated from a low of R$2.2709 per US$1.00 to a high of R$3.9552 per US$1.00. On June 6, 2005, the rate was R$2,4576 per US$1.00. The real depreciated against the U.S. dollar approximately 2.3% in 2002, due in part to the continued economic and political uncertainties in Brazil and other emerging markets and the global economic slowdown. In 2003 and 2004, the real appreciated 18.2% and 8.1%, respectively, against the U.S. dollar. In the first quarter of 2005 the real depreciated 1% against the U.S. dollar. Further fluctuations in the Brazilian currency, in relation to the U.S. dollar or other currencies, may have an adverse effect on CSN's financial condition and results, increasing the cost in real
s of CSN's foreign currency denominated borrowings and imports of raw materials, particularly coal and coke
.
rates have in the past had negative effects on the Brazilian economy and CSN's business. During 2002, the Central Bank raised Brazil's base interest rate
by a total of 7.5% to 26.5% as a result of the growing economic crisis in Argentina
, one of Brazil's primary trading partners, the lower level of growth of the U.S. economy and the economic uncertainty caused by the Brazilian presidential elections, among other factors. During 2003, the Central Bank decreased Brazil's interest rate from 26.5% to 16.5%, reflecting the good momentum and inflation stability in line with the Central Bank's inflation target. During 2004, the Central Bank increased Brazil's base interest rate by 1.25% to 17.75%, on concerns that growth in Brazil's gross domestic product could jeopardize the inflation target.
's new offer on December 11. Tata Steel and Corus had already been preparing a merger agreement when CSN barged in on November 17. CSN's bid will be formalised, if Corus' board cooperates, after a due diligence is completed. The Corus board was supposed to vote on the Tata offer on December 4, but postponed its meeting until December 20, thus granting more time for CSN to formalise its bid.
The merchant bankers of CSN have purchased about 15% shares of Corus from the open market, clearly indicating the strong intent it has in the deal.
As of December 11, 2006, the board of Corus have formally announced their recommendation of acceptance of the bid by CSN to the amount of 515p per share (approx £4.9 billion total), although it has also confirmed that CSN already owns 3.8% of those shares through previous purchases on the open market. This bid was in response to Tata's increased offer of 500p per share. Agreement has also been reached with both of Corus' main pension bodies on the acquisition.
On January 30, both Tata Steel and CSN bid for Corus in a closed-door, nine-round auction in London. Both Tata Steel and CSN were expected to considerably up the offer from the previous 515 pence. However, doubts are already being raised about the bid winner eventually proving to be a loser, owing to unrealistic valuation
of Corus.
In the bidding war it was India's Tata Steel which won the bid in an auction round. It outbidded CSN at 608 pence per share.
CSN came into headlines recently because of the battle it took part in to acquire Corus. After a heated bidding war, Tata Steel managed to acquire Corus, but not before it was forced to pay a much higher price than it had initially proposed. Interestingly, CSN and Corus had planned to merge in the year 2002. Corus had bid 2.7 billion pounds for CSN. But the bid failed to come through. This was the not the only interaction between CSN and Corus. They were partners in a Portuguese venture till early this year, when Corus sold its stake to CSN.
Brazil, Metallurgica Gerdau
, Companhia Siderúrgica Paulista (COSIPA), Usiminas and CST-Brazil.
The primary competitive factors in the domestic market include quality, price, payment terms and customer service. Although CSN competes with other integrated Brazilian steel mills, it has not experienced significant import
competition in Brazil from foreign steel companies. Several foreign steel companies, however, are significant investors in Brazilian steel mills.
CSN has these competitive advantages over its Brazilian competitors:
• Its focus on selling high margin products, such as tin plate, pre-painted, galvalume and galvanized products, in its product mix.
• It owns its iron ore reserves, compared to domestic competitors who purchase their iron ore requirements (mainly from CVRD
).
• It has a well-developed logistics
infrastructure, from the iron ore mine to its steel mill and its own ports.
• It is self-sufficient in energy, through the hydroelectric plants of Itá
and Igarapava, and its own thermoelectric plant inside the Volta Redonda mill.
• GalvaSud, a 100% subsidiary of CSN, provides material for exposed auto parts, using hot-dip galvanized steel and laser-welded blanks, a trend in this industry. This, together with the hot-dip galvanizing process know-how of CSN, allows them to dominate the automotive segment.
• CSN Paraná, another subsidiary of CSN, provides additional capacity to produce high-quality galvanized, galvalume and pre-painted steel products for the construction and home appliance industries.
in the Rio de Janeiro state. Also, CSN plans to expand its iron ore production from 16 million tons per year to 50 million tons in Volta Redonda, where the company is headquartered.
.
CSN has positioned itself in the world market as a high margin, high demand steel producer, with products such as tin mill and galvanized. It has relatively low-cost labor available and owns high-grade iron ore reserves that more than meet production needs. These global market advantages are however, partially offset by costs of transporting steel throughout the world, usually by ship.
To maintain its competitive viability in the world steel market, CSN has maintained its product quality and customer service at a high level. CSN continuously monitors the quality of its products by measuring customer satisfaction with its steel in Europe, Asia and the Americas
.
Being a Brazilian company, principal competitive advantages of CSN are its abundant supply of low-cost, high-grade iron ore, low-cost labor and energy resources, and good quality of its infrastructure (railways and ports, mainly). It is also benefited from a vast internal market present in Brazil with a large growth potential. As a result of these advantages, CSN has one of the lowest steel production costs in the world.
This low production cost in Brazil is another barrier to foreign steel imports. Consequently, most of the steel sold in the Brazilian steel market is manufactured by Brazilian producers and CSN shares a big portion of this pie.
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
. Its main plant is located in the city of Volta Redonda
Volta Redonda
Volta Redonda is the name of a city in the Rio de Janeiro state of Brazil with 182.81 km² of area, located from 350m to 707m from the sea level and with a population of 259,811 inhabitants . The area around the city has nearly 700,000...
, in the state of Rio de Janeiro
Rio de Janeiro (state)
Rio de Janeiro is one of the 27 states of Brazil.Rio de Janeiro has the second largest economy of Brazil behind only São Paulo state.The state of Rio de Janeiro is located within the Brazilian geopolitical region classified as the Southeast...
. Its current CEO is Benjamin Steinbruch.
Companhia Siderúrgica Nacional is the largest fully integrated steel producer in Brazil and one of the largest in South America in terms of crude steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
production. CSN’s Chief Executive Officer is Benjamin Steinbruch. Its annual crude steel capacity and rolled product capacity are 5.6 million and 5.1 million tons, respectively. It produces a broad line of steel products, including slabs, hot- and cold-rolled, galvanized and tin
Tin
Tin is a chemical element with the symbol Sn and atomic number 50. It is a main group metal in group 14 of the periodic table. Tin shows chemical similarity to both neighboring group 14 elements, germanium and lead and has two possible oxidation states, +2 and the slightly more stable +4...
mill products. Its products are used by the distribution, packaging, automotive, home appliance and construction industries.
CSN
CSN
CSN might be an acronym or abbreviation for:Companies* CSN Stores* Calvary Satellite Network* Centrala Studiestödsnämnden...
accounted for approximately 49% of the galvanized steel products sold in Brazil. In 2004, it accounted for approximately 98% of the tin mill products sold in Brazil. It is one of the world’s leading producers of tin mill products. CSN is also unique in owning its own source of iron
Iron
Iron is a chemical element with the symbol Fe and atomic number 26. It is a metal in the first transition series. It is the most common element forming the planet Earth as a whole, forming much of Earth's outer and inner core. It is the fourth most common element in the Earth's crust...
ore.
Foundation
It was created as a state-owned company on April 9, 1941, during the "Estado NovoEstado Novo (Brazil)
Vargas Era is the period in the history of Brazil that lasted from 1930 to 1945, when the country was under the leadership of Getúlio Dornelles Vargas....
", by Brazilian president, Getulio Vargas
Getúlio Vargas
Getúlio Dornelles Vargas served as President of Brazil, first as dictator, from 1930 to 1945, and in a democratically elected term from 1951 until his suicide in 1954. Vargas led Brazil for 18 years, the most for any President, and second in Brazilian history to Emperor Pedro II...
, after an agreement between the American and the Brazilian governments (the Washington Accords) for the construction of a facility that would provide steel for the Allies during the Second World War and later be an aid for Brazil's development. It began its operations in 1946, under Eurico Gaspar Dutra
Eurico Gaspar Dutra
Eurico Gaspar Dutra , was a Brazilian marshal, politician and president of Brazil from 1946–1951.He was born in Cuiabá, Mato Grosso, and like many other Brazilians, was from Azorean-Portuguese origin...
's presidency.
CSN was a Brazilian corporation incorporated in 1941 pursuant to a decree of Brazilian President Getúlio Vargas. The Presidente Vargas Steelworks, located at Volta Redonda, in Rio de Janeiro State, started production in 1946. It initially produced coke, pig iron castings and long products. Two major expansions were undertaken at the Presidente Vargas Steelworks during the 1970s. The first, completed in 1974, increased installed annual production capacity to 1.6 million tons of crude steel. The second, completed in 1977, raised capacity to 2.4 million tons of crude steel.
Growth of CSN post-1980
CSN underwent another expansion in 1989, increasing capacity to 4.5 million tons of crude steel. Until 1993, CSN was a government entity. It was privatized through a series of auctions held in 1993 and early 1994, through which the Brazilian government sold its 91% interest in the company.In 1993, CSN adopted a capital improvement program, which was revised and extended in 1995. The goals of the capital improvement program were to increase the annual production of crude steel, to improve the productivity of the production units and the quality of the products, and to enhance the environmental protection and cleanup programs. Since February 1996, all production has been based on the continuous casting process, rather than ingot casting, an alternative method that results in higher energy use and metal loss. From 1996 through 2002, CSN spent the equivalent of US$2.4 billion under the capital improvement program and for operational capacity maintenance, culminating with the revamping in 2001 of Blast Furnace
Blast furnace
A blast furnace is a type of metallurgical furnace used for smelting to produce industrial metals, generally iron.In a blast furnace, fuel and ore and flux are continuously supplied through the top of the furnace, while air is blown into the bottom of the chamber, so that the chemical reactions...
#3 and Hot Strip Mill #2 at the Presidente Vargas Steelworks that increased the annual production capacity to 5.6 million tons of crude steel and 5.1 million tons of rolled products, from approximately 5.0 million tons in each case at the beginning of 2001.
In 2005, CSN set its sights high: To reinforce its position as the largest iron-mining operation in the country,through its controlling stake in Companhia Vale do Rio Doce
Companhia Vale do Rio Doce
Vale S.A. Vale S.A. Vale S.A. (BM&F Bovespa: / , / , / , / , is an Brazilian diversified mining multinational corporation and one of the largest logistics operators in Brazil. In addition to being the second-largest mining company in the world, Vale is also the largest producer of iron ore,...
(CVRD), and to join the exclusive global club of the world's largest suppliers of the commodity.
In January 2004, the CSN board announced the approval of investments up to US$820 million to be made through 2007, for:
• The expansion of the annual production of the Casa de Pedra iron ore mine from 15.5 million tons in 2004 to approximately 40 million tons.
• The expansion of the coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
terminal adjacent to the Sepetiba
Sepetiba
Sepetiba is a neighborhood in the western zone of Rio de Janeiro, surrounded by Santa Cruz and Guaratiba, and by the Sepetiba Bay. It occupies an area of 1,162.13 ha, and has a population of 35,892 .The origin of the name Sepetiba is the Tupi, which has the word "Sipitiba" as an alternative and...
Port facilities to enable annual exports of up to 30 million tons of iron ore.
• The construction of a six million-ton pellet plant.
CSN also explored opportunities for acquisitions or mergers abroad in order to expand output. It proposed to build a new steel plant which would have doubled current annual production of 5.8 million tons of raw steel, at an estimated investment cost of US$2.6 billion, assuming prospecting results pan out. Seeking to maintain focus on its program of acquisitions and growth, CSN set aside $520 million for investments in 2005.
Privatization
It was a state-owned firm until 1993, when it was privatized by Itamar FrancoItamar Franco
Itamar Augusto Cautiero Franco was a Brazilian politician and the President of Brazil from December 29, 1992, to January 1, 1995. During his long political career, Franco was also a Senator, Mayor, Ambassador, Governor and Vice President...
's government, during the National Program for Privatization led by the federal government, started by Fernando Collor and continued by Franco.
Its main factories are located in Volta Redonda, at the Vale do Paraíba region, southern Rio de Janeiro
Rio de Janeiro
Rio de Janeiro , commonly referred to simply as Rio, is the capital city of the State of Rio de Janeiro, the second largest city of Brazil, and the third largest metropolitan area and agglomeration in South America, boasting approximately 6.3 million people within the city proper, making it the 6th...
state, and its iron mines at Congonhas and Arcos, both of them cities in the Minas Gerais state, and the coal mines at Siderópolis, Santa Catarina state.
During almost 50 years of state control, the Brazilian flat steel sector was coordinated on a national basis under the auspices of Siderbrás, the national steel monopoly. The state had far less involvement in the non-flat steel sector, which has traditionally been made up of smaller private sector
Private sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
companies. The larger integrated flat steel producers operated as semiautonomous companies under the control of Siderbrás and were individually privatized during 1991 to 1993.
Production
CSN primarily operates as an integrated steel producer in Brazil. It produces a line of steel products, including slabs, which are semi-finished products used for processing hot-rolled, cold-rolled, or coated coils and sheet products; hot-rolled products comprising heavy-gauge hot-rolled coils and sheets, and light-gauge hot-rolled coils and sheets; cold-rolled products, including cold-rolled coils and sheets; and galvanized products consisting of flat-rolled steel coated with zinc or a zinc-based alloy. The company also offers tin mill products, including tin plate, tin free steel, low tin coated steel, and black plate products. CSN also mines iron ore, limestone, and dolomite, and maintains strategic investments in railroads and power supply companies. The company sells its steel products to customers in Brazil and 71 other countries in North America, Europe, and Asia through its sales force and distributors. It is considered one of the most productive steel-makers in the world, producing more than 6 million tons of raw steel and more than 5 million tons of laminates per year.Holding
CSN owns different firms, such as GalvaSud (in Porto Real - Rio de Janeiro), Inal (in Mogi das Cruzes - São Paulo and Barra Mansa - Rio de Janeiro), CSN PARANÁ (in Araucária - Paraná) and container (TECON) and coal (TECAR) terminals in the Itaguaí port (in Itaguaí - Rio de Janeiro). It also has control through shareholding in MRS Logistics, CFN, in railway transportation, the hydroelectric generators of Igarapava between the São Paulo and Minas Gerais states and Itá, between Santa Catarina and Rio Grande do Sul states, and factories in the United States and Portugal.Anti-dumping, Countervailing Duties, Safeguards and Government Protectionism
Protectionist measures adopted by the governments in some of CSN's main markets could adversely affect crucial exportExport
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. The seller of such goods and services is referred to as an "exporter" who is based in the country of export whereas the overseas based buyer is referred to as an "importer"...
sales. In response to the increased production and exports of steel in many countries, anti-dumping, countervailing duties
Countervailing duties
Countervailing duties , also known as anti-subsidy duties, are trade import duties imposed under WTO Rules to neutralize the negative effects of subsidies. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in the importing country...
and safeguard measures have been imposed by countries which represent some of the main markets for CSN exports. Those, and similar, measures could provoke an imbalance in the international steel market, which could adversely affect CSN's exports.
Potential Costs of Environmental Compliance; Mining Regulation
New environmental standards imposed on CSN may require capital expenditures that do not increase productivity. CSN's steel-making facilities are subject to a broad range of laws, regulations and permit requirements in Brazil relating to the protection of human health and the environment.Dependence on Water Source
Large amounts of water are required in the production of steel. CSN's principal source of water is the Paraíba do SulParaíba do Sul
thumbThe Paraíba do Sul , or simply termed Paraíba, is a river in the south-east of Brazil. It flows 1,137 kilometres west to northeast from its farthest source at the source of the river Paraitinga to the sea near Campos...
river, which runs through the city of Volta Redonda. Much of the water is recirculated, and some, after processing, is returned to the Paraíba do Sul river. A law passed in 1997 permits the Brazilian government to charge for water usage from water courses.
Brazilian government policies in the energy sector may have an adverse impact on the cost or supply of electricity for CSN aluminum-related and ferroalloy operations.
Tax and Social Security Reforms May Affect the Brazilian Economy, and May Impose a Higher Tax Burden on CSN.
The Brazilian Federal Congress has recently amended the Brazilian Constitution to modify certain aspects of the social security and tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
system. Moreover, the Brazilian Federal Congress is currently reviewing additional bills which would introduce further changes to Brazil's tax and social security laws. Such reforms may affect Brazilian economic conditions generally, and may impose a higher tax burden on CSN. If CSN is not able to pass the cost of such potential higher tax and social security burdens to customers, their profit margins may be adversely affected.
Mining Concessions
CSN mining operations are governed by the Brazilian Constitution and the MiningMining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...
Code and are subject to the laws, rules and regulations promulgated pursuant to the Constitution and the Code. Under the Brazilian Constitution, all mineral resources belong to Brazil. CSN mining activities at the Casa de Pedra mine are based on holding of a Manifesto de Mina, which gives them full ownership over the mineral deposits existing within their property limits. CSN mining activities at the Bocaina
Bocaina
Bocaina is a city in the state of São Paulo in Brazil. The population in 2004 is 10,565. The area is 363.33 km²....
mine are based on a concession which gives them the right to mine for as long as ore reserves exist.
Fluctuation of the Real Exchange Controls
Fluctuation in the exchange rateExchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
of the real can adversely affect CSN earnings. Historically, emerging markets, including Brazil, have experienced devaluation
Devaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
of their currency at various times. In 2002, the Brazilian exchange rate fluctuated from a low of R$2.2709 per US$1.00 to a high of R$3.9552 per US$1.00. On June 6, 2005, the rate was R$2,4576 per US$1.00. The real depreciated against the U.S. dollar approximately 2.3% in 2002, due in part to the continued economic and political uncertainties in Brazil and other emerging markets and the global economic slowdown. In 2003 and 2004, the real appreciated 18.2% and 8.1%, respectively, against the U.S. dollar. In the first quarter of 2005 the real depreciated 1% against the U.S. dollar. Further fluctuations in the Brazilian currency, in relation to the U.S. dollar or other currencies, may have an adverse effect on CSN's financial condition and results, increasing the cost in real
Real
Real may also refer to:* Reality, the state of things as they actually exist, rather than as they may appear or may be thought to be.-Finance:* Inflation adjusted amountsCurrencies:* Brazilian realFormer currencies:* Mexican real* Portuguese real...
s of CSN's foreign currency denominated borrowings and imports of raw materials, particularly coal and coke
Coke (fuel)
Coke is the solid carbonaceous material derived from destructive distillation of low-ash, low-sulfur bituminous coal. Cokes from coal are grey, hard, and porous. While coke can be formed naturally, the commonly used form is man-made.- History :...
.
Inflation and Interest Rate Risks
High inflationInflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
rates have in the past had negative effects on the Brazilian economy and CSN's business. During 2002, the Central Bank raised Brazil's base interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
by a total of 7.5% to 26.5% as a result of the growing economic crisis in Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
, one of Brazil's primary trading partners, the lower level of growth of the U.S. economy and the economic uncertainty caused by the Brazilian presidential elections, among other factors. During 2003, the Central Bank decreased Brazil's interest rate from 26.5% to 16.5%, reflecting the good momentum and inflation stability in line with the Central Bank's inflation target. During 2004, the Central Bank increased Brazil's base interest rate by 1.25% to 17.75%, on concerns that growth in Brazil's gross domestic product could jeopardize the inflation target.
Bid for Corus
CSN has bid for the Anglo-Dutch steel firm Corus, valuing it at 9.6 billion dollars in response to Tata SteelTata Steel
Tata Steel is a multinational steel company headquartered in Jamshedpur, India and part of Tata Group. It is the world's seventh-largest steel company, with an annual crude steel capacity of 31 million tonnes, and the largest private-sector steel company in India measured by domestic production...
's new offer on December 11. Tata Steel and Corus had already been preparing a merger agreement when CSN barged in on November 17. CSN's bid will be formalised, if Corus' board cooperates, after a due diligence is completed. The Corus board was supposed to vote on the Tata offer on December 4, but postponed its meeting until December 20, thus granting more time for CSN to formalise its bid.
The merchant bankers of CSN have purchased about 15% shares of Corus from the open market, clearly indicating the strong intent it has in the deal.
As of December 11, 2006, the board of Corus have formally announced their recommendation of acceptance of the bid by CSN to the amount of 515p per share (approx £4.9 billion total), although it has also confirmed that CSN already owns 3.8% of those shares through previous purchases on the open market. This bid was in response to Tata's increased offer of 500p per share. Agreement has also been reached with both of Corus' main pension bodies on the acquisition.
On January 30, both Tata Steel and CSN bid for Corus in a closed-door, nine-round auction in London. Both Tata Steel and CSN were expected to considerably up the offer from the previous 515 pence. However, doubts are already being raised about the bid winner eventually proving to be a loser, owing to unrealistic valuation
Valuation
-Economics:*Valuation , the determination of the economic value of an asset or liability**Real estate appraisal, sometimes called property valuation , the appraisal of land or buildings...
of Corus.
In the bidding war it was India's Tata Steel which won the bid in an auction round. It outbidded CSN at 608 pence per share.
CSN came into headlines recently because of the battle it took part in to acquire Corus. After a heated bidding war, Tata Steel managed to acquire Corus, but not before it was forced to pay a much higher price than it had initially proposed. Interestingly, CSN and Corus had planned to merge in the year 2002. Corus had bid 2.7 billion pounds for CSN. But the bid failed to come through. This was the not the only interaction between CSN and Corus. They were partners in a Portuguese venture till early this year, when Corus sold its stake to CSN.
Competitive advantage
The main competition of CSN in Brazil are ArcelorArcelor
Arcelor S.A. was the world's largest steel producer in terms of turnover and the second largest in terms of steel output, with a turnover of €30.2 billion and shipments of 45 million metric tons of steel in 2004...
Brazil, Metallurgica Gerdau
Gerdau
Gerdau is the largest producer of long steel in America, with steel mills in Brazil, Argentina, Canada, Chile, Colombia, Dominican Republic, Guatemala, India, Mexico, Peru, Spain, the United States, Uruguay and Venezuela. It also holds 40% stake in the Spanish company Sidenor and has a joint...
, Companhia Siderúrgica Paulista (COSIPA), Usiminas and CST-Brazil.
The primary competitive factors in the domestic market include quality, price, payment terms and customer service. Although CSN competes with other integrated Brazilian steel mills, it has not experienced significant import
Import
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import whereas the overseas based seller is referred to as an "exporter". Thus...
competition in Brazil from foreign steel companies. Several foreign steel companies, however, are significant investors in Brazilian steel mills.
CSN has these competitive advantages over its Brazilian competitors:
• Its focus on selling high margin products, such as tin plate, pre-painted, galvalume and galvanized products, in its product mix.
• It owns its iron ore reserves, compared to domestic competitors who purchase their iron ore requirements (mainly from CVRD
CVRD
CVRD can stand for:* Vale , formerly known as Companhia Vale do Rio Doce * Comox Valley Regional District, a regional government in British Columbia, Canada...
).
• It has a well-developed logistics
Logistics
Logistics is the management of the flow of goods between the point of origin and the point of destination in order to meet the requirements of customers or corporations. Logistics involves the integration of information, transportation, inventory, warehousing, material handling, and packaging, and...
infrastructure, from the iron ore mine to its steel mill and its own ports.
• It is self-sufficient in energy, through the hydroelectric plants of Itá
Itá Hydroelectric Power Plant
The Itá Hydroelectric Power Plant is a dam and hydroelectric power plant on the Uruguay River near Itá on the border of Santa Catarina and Rio Grande do Sul, Brazil. The power station has a 1,450 MW capacity and is supplied with water by a concrete face rock-fill embankment dam...
and Igarapava, and its own thermoelectric plant inside the Volta Redonda mill.
• GalvaSud, a 100% subsidiary of CSN, provides material for exposed auto parts, using hot-dip galvanized steel and laser-welded blanks, a trend in this industry. This, together with the hot-dip galvanizing process know-how of CSN, allows them to dominate the automotive segment.
• CSN Paraná, another subsidiary of CSN, provides additional capacity to produce high-quality galvanized, galvalume and pre-painted steel products for the construction and home appliance industries.
CSN Future Outlook
CSN has vowed to continue with its process of internationalization, in spite of losing out on Corus. A step to be taken by the CSN in this direction is to increase its annual production of steel plates by 4.5 million tons in ItaguaiItaguaí
Itaguaí is a municipality located in the Brazilian state of Rio de Janeiro. Its population was 93,662 and its area is 272 km². The city was founded in 1688....
in the Rio de Janeiro state. Also, CSN plans to expand its iron ore production from 16 million tons per year to 50 million tons in Volta Redonda, where the company is headquartered.
Global business concerns
Brazil is the eighth largest producer of crude steel in the world, with a production output of 32.9 million tons and a 3.1% share of total world production. It is also the fourth largest net exporter of steel after Russia, Japan and UkraineUkraine
Ukraine is a country in Eastern Europe. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after Russia...
.
CSN has positioned itself in the world market as a high margin, high demand steel producer, with products such as tin mill and galvanized. It has relatively low-cost labor available and owns high-grade iron ore reserves that more than meet production needs. These global market advantages are however, partially offset by costs of transporting steel throughout the world, usually by ship.
To maintain its competitive viability in the world steel market, CSN has maintained its product quality and customer service at a high level. CSN continuously monitors the quality of its products by measuring customer satisfaction with its steel in Europe, Asia and the Americas
Americas
The Americas, or America , are lands in the Western hemisphere, also known as the New World. In English, the plural form the Americas is often used to refer to the landmasses of North America and South America with their associated islands and regions, while the singular form America is primarily...
.
Being a Brazilian company, principal competitive advantages of CSN are its abundant supply of low-cost, high-grade iron ore, low-cost labor and energy resources, and good quality of its infrastructure (railways and ports, mainly). It is also benefited from a vast internal market present in Brazil with a large growth potential. As a result of these advantages, CSN has one of the lowest steel production costs in the world.
This low production cost in Brazil is another barrier to foreign steel imports. Consequently, most of the steel sold in the Brazilian steel market is manufactured by Brazilian producers and CSN shares a big portion of this pie.
External links
- Companhia Siderúrgica Nacional Official Site