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Projects in Brazilian steel industry pipeline continue but at a slower pace

Otto Andrade

Consultant/Andrade & Associados Consultoria

Published  Thursday, October 22, 2009

For this week's interview, BNamericas spoke with Andrade & Associados steel market consultant Otto Andrade who gave an overview of the Brazilian steel market and talked about the country’s construction and expansion pipeline. The former Usiminas and Nippon Steel executive also mentioned possible transactions in the steel business in the medium to long term.

BNamericas: Give us an overview of what is going on in the Brazilian steel industry project pipeline today?

Andrade: Let’s first talk about Usiminas. Their Santana do Paraíso steel slab project is currently being held down until the state government finds a location for the new airport. Once a location is found construction of the plant would start on the site of the current airport [which is on land owned by Usiminas.] Production, however, would start with just one converter and one continuous casting machine. Initial production would be 600,000-800,000t/y. The original plan was to have three converters and five continuous casting machines [and capacity of 5Mt/y by 2012 for total capex of US$5.7bn.]

BNamericas: What can we expect for Gerdau?

Andrade: Gerdau wants a new pig iron casting machine in its Gerdau Açominas plant in Minas Gerais state. They are after a machine with capacity to produce 300,000t/y of iron ingots. They would have to import the equipment either from China or from Finland. Gerdau Açominas is also implementing its technological update program.

BNamericas: How about the companies belonging to ArcelorMittal in Brazil?

Andrade: There are no major plans at special steels operation Acesita, in Minas Gerais' Timoteo. However, there have been rumors that Usiminas could be interested in buying it. Acesita is a good exchange asset. Acesita doesn’t have much room for growth and there is not that much of a market for stainless steel. Acesita has two medium sized furnaces which produce 500,000t/y. Their furnaces can either be fueled with charcoal or coal. And that’s why Usiminas is very interested in buying this asset. It’s an old dream.

Purchasing Acesita would enable Usiminas to own charcoal fueled blast furnaces. The three furnaces belonging to Usiminas are fueled by coal. Additionally, there are other advantages in logistics and management. Acesita is less than 30km from Ipatinga where Usiminas is headquartered. But of course, aside from Usiminas, there are other major groups interested in Acesita as well, such as Votorantim and Camargo Corrêa.

BNamericas: How much is Acesita worth?

Andrade: Somewhere around US$700mn. But it depends on the thirst and hunger of ArcelorMittal. It’s a wonderful company, well placed and well positioned. I’ve worked there helping with the renovation of their furnaces.

BNamericas: How about ArcelorMittal’s Juiz de Fora facility in the state?

Andrade: At Juiz de Fora, ArcelorMittal has a plan for a new 500,000t/y blast furnace which could be announced at any moment. The people at ArcelorMittal are pulling the project out of the archives. This furnace would produce wires and drawn products. Also in Minas Gerais, at their wire rod facility at ArcelorMittal Monlevade the company is getting rid of two, 300,000t/y small furnaces and building a larger furnace. The idea is to get rid of two other small furnaces and stay with two 500,000t/y furnaces. They are just waiting for the right moment to pull the project out of the drawer.

BNamericas: What is going on at ArcelorMittal’s Tubarão facility in Espírito Santo state?

Andrade: They are reforming their blast furnace 1. This is the most anticipated plant reform of the year. The furnace has been in need of upgrade works for about 15 years. The furnace has capacity to produce 3.5Mt/y and will stop for over 100 days. They are going turn it into almost a new furnace. They are going to pull out the hull, all the refractory and the entire piping system. They're also going to implement new technology. I can say that the bidding is already underway and international firms are making offers. Works should start in 120-150 days. They would operate with the smaller furnaces 2 and 3, which produce 1.3Mt/y and 2.8Mt/y, respectively.

BNamericas: What is the status of the French-Japanese JV Vallourec & Sumitomo Tubos do Brasil project in Jeceaba, Minas Gerais?

Andrade: It is at a steady pace. During the crisis the pace of construction slowed a bit but is now at full throttle.

[The company recently reported it will start operations of the 1Mt/y crude steel plant and 600,000t/y seamless tube rolling mill in mid-2010.]

BNamericas: Let’s now move on to CSN, what are some of their upcoming undertakings?

Andrade: CSN is very much concentrated on electric power generation. However, their great asset today is the Casa de Pedra iron ore mine in Congonhas, Minas Gerais. In my opinion, Casa de Pedra has the best iron ore in Brazil. They are considering constructing a steelmill next to Casa de Pedra. But this rumor has been going on for the past 5-6 years.

This plant would be a much more competitive mill than what they have now in Volta Redonda [Rio de Janeiro state]. The problem with the Volta Redonda facility is that it's not located near an iron ore mine, or a coal mine or even a seaport. I believe that for this undertaking in Congonhas, CSN may need a partner. CSN chips in with the iron ore and the ideas whereas the partner comes in with the cash.

BNamericas: If constructed, what kind of products would this mill produce, long steel products perhaps?

Andrade: No, long steels are not their thing. Gerdau has a long steels facility nearby in Ouro Branco. So it doesn’t make sense for CSN to manufacture long steel products. I think they would produce flat steel products such as sheets and coils.

BNamericas: Tell us more about Vale’s Alpa project in Pará state.

Andrade: This is the mill that is turning the market upside down. Vale is in a hurry to complete this project and is throwing a lot of money into it. Capex is some US$3.3bn. We hear that is all Vale’s, but I believe that there might be some Asian cash behind this project, either Chinese or South Korean. In this project, Vale is all about top quality products. Price quotes are going to start appearing as of November.

BNamericas: How about Vale's JV with South Korean corporation Dongkuk to build the Companhia Siderúrgica do Pecém (CSP) 3M-6Mt/y slab plant?

Andrade: I'm only talking about projects that have had their budget approved. This CSP project has been around since I was a child and I'm 60 years old. I've visited it three times, including once three years ago. But all I have seen so far there is just a big wooded area.

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