Hot-rolling mill key to CSN's US expansion

Thursday, December 19, 2002

The acquisition of a hot-rolling mill is a strategic necessity for the North American operations of Brazilian flat steelmaker CSN (NYSE: SID), a company executive told BNamericas.

CSN has been bidding for hot-rolling mills in the US but has not yet managed to snap one up. "We do not have a specific budget to acquire a mill. The price we would be willing to pay depends on factors including the type of asset, age and location," said the official, Elton de Campos Passaro, administrative and finance director of the company's sole plant in the United States, CSN-LLC.

Acquiring a hot-rolling mill would allow CSN to increase margins at its North American operations and expand production at its current plant, a cold-rolling mill in Terre Haute, Indiana. "It would be better if we could buy an existing mill rather than have to construct one from scratch, which would cost some US$200mn," Passaro said.

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Currently, the Rio de Janeiro-based steelmaker must export slabs from its mill in Brazil to be processed into hot bands (hot-rolled coils) at sub-contracted plants in the US. Passaro said the ideal would be for CSN to export hot-bands directly to the US, but trade barriers prohibit this option. "The US imposes a minimum price on Brazilian hot-bands that makes their entrance into the market impossible," he said.

About half of CSN-LLC's steel inputs (hot bands) derive from CSN slabs that are rolled in the US with the other half purchased on the local market. "The goal is to use 100% of our slabs in production," Passaro said.

If CSN had its own hot-rolling mill in the US, the steelmaker could insure product control and supplies to its cold-rolling mill. Passaro and Kevin Young, operations director at CSN-LLC, said the target would be a plant with installed capacity of 2.7-3.2Mt.

Such capacity would be more than enough to satisfy the needs of the cold-rolling mill and excess output not used at CSN-LLC could be sold on the local market. With insured supply of its own hot-bands, output at the Terre Haute plant could be expanded. "CSN-LLC has room for another galvanizing line," Passaro said.


The state-of-the-art Terre Haute mill cost its former owners, Heartland Steel, US$300mn to build, but due to adverse market conditions the plant was forced to shut down two months after production began.

CSN snapped up the bankrupt asset in July last year for US$50mn plus US$19mn in debt. By investing just US$8mn in infrastructure, logistics and other minor unfinished details at the mill, the Brazilian company recouped its investment within five months of operations beginning under its command in August 2001.

Higher prices on the domestic market and racking up to full production allowed the steelmaker to enjoy a boom year in 2002. The cold-rolling mill is expected to produce 340,000t of finished products this year - 254,000t galvanized and 54,000t of cold-rolled steel.

CSN forecasts that output next year will stand at around 381,000t - or 308,000t of galvanized steel and 73,000t of cold-rolled products.

In the third quarter of 2002, prices for galvanized steel were over US$500/t. "Higher prices resulted from a fall in supply, which came about from US safeguards [on imports] and ISG [formerly LTV] stopping production," Passaro said.

Now with ISG starting full production galvanized steel prices in the US have fallen to under US$480/t.

Young said that Heartland, which like LTV went into bankruptcy protection, lost out because of bad timing. "The year 2001 was one of the worst years in the history for the US steel industry," he said.