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Outlook, Strategy and Investments
Given prospects of a global economic downturn and despite the more positive outlook for Brazil’s economy, domestic demand for flat and long steel, iron ore and cement is likely to suffer in 2009.
Transport of iron ore at Casa de Pedra (MG)
On the other hand, the progress of recent investments, such as the expansion of Casa de Pedra and Namisa and the completion of the first stage of the cement plant should boost revenue, cash flow and profitability, more than offsetting the adverse impact of the global crisis.
Faced with this challenging scenario, CSN will seek to make use of its competitive advantages to gain a larger share of its industrial segments in Brazil and expand its activities abroad, especially in the EU and U.S., through its existing subsidiaries and possible strategic acquisitions.
The investments to substantially increase iron ore, long steel and cement capacity will move ahead as planned, given that their rates of return are well above the Company’s cost of capital, even in the midst of the worldwide financial crisis. In addition, the pay-back period will be a few years only.
Growth of the iron ore business - Top
CSN will seek to make use of its competitive advantages to gain a larger share of its industrial segments
Last year, CSN consolidated its position as a player in the international iron ore market, the first step having been taken in February 2007 with the completion of the initial phase of the expansion of the Itaguaí bulk solids terminal and the first overseas ore shipment. Sales in 2008 totaled 18.2 million tonnes, 14.3 million of which abroad. In addition, crude steel production at the Presidente Vargas Steelworks consumed 7.5 million tonnes.
The Company aims to increase its share in the most important consumer markets with its high-quality ore.
The expansion of the Casa de Pedra Mine, Namisa, the port terminal and the pellet plants absorbed total investments of around US$ 3.8 billion and the business plan calls for an increase in production capacity from the current 28 million tonnes per year to 90 million by 2013.
In 2009, we expect output and sales of 37 and 32 million tonnes respectively.
In December 2008, CSN sold a 40% stake in Namisa for US$ 3.08 billion to na Asian consortium comprising ITOChU, JFE Steel, Nippon Steel, Sumitomo Metal Industries, Kobe Steel, Nisshin Steel and Posco.
The iron ore segment is characterized by high margins and returns, prices having risen by more than 240% in the last five years.
Growth of the steel business - Top
Above: 50kg bags of cement will de sold on the retail market.Bellow:The steel mill in the Presidente Vargas unit
Given the challenges posed by the global financial crisis and its impact on steel product demand and prices, the Company decided to review its proposed investments in increasing flat steel production capacity, previously approved by the Board of Directors.
The projects currently under review or analysis will almost triple crude steel capacity from the current 5.6 million tonnes to around 15 million tonnes, paving the way for the Company’s internationalization.
The investment of US$ 340 million to produce around 600,000 tonnes of long steel per year as of 2010 will continue, as previously announced. This investment has a rate of return which is well above the company’s capital cost and the pay-back period is only a few years.
The Company’s strategy is: (I) to produce more slabs in Brazil, where it has na enormous competitive advantage, while undertaking rolling and finishing operations abroad, acting as a local player in such strategic markets as the EU and U.S. through its existing subsidiaries or possible new acquisitions; and (II) to complement the portfolio of products geared towards the domestic market, especially in the long steel segment, in strategic preparation for the expected expansion of the Brazilian economy. The new 600,000 tonnes p.a. long steel plant should be up and running as of December 2010, making use of existing infrastructure and raw materials at the Presidente Vargas complex.
Growth in new markets – cement - Top
In order to add value to its shareholders, CSN is investing around R$ 590 million to produce 2.3 million tonnes of cement per year using blast-furnace slag from the Presidente Vargas Steelworks and limestone from the Arcos mine in Minas Gerais. The first phase will be concluded in 2009, permitting annual output of 1.0 million tonnes. The cement industry has been growing at an average 8% p.a. over the last five years and the preliminary 2008 figures point to a 13% increase over 2007, according to SNIC (National Cement Industry Trade Union), the cement manufacturers’ association. Growth in 2009 is estimated at 3%.