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Galvanizing bolsters steelmakers' earnings

Bnamericas Published: Wednesday, May 21, 2003
Investments in galvanization have boosted the revenues and earnings of Brazilian flat steelmakers, analysts told BNamericas. "Sales of galvanized products have increased companies' margins and revenues by improving overall product mix," said Luciana Machado, a steel analyst from brokerage Fator Doria Atherino. Belo Horizonte-based flat steel group Usiminas has increased the value-added element of its products with galvanized sales. The company's galvanization arm, Unigal, increased sales volumes of eletrogalvanized and galvanized products 51% to 143,000t in the first quarter compared to the same period in 2002. Of this amount, 122,000t were sold on the domestic market. The country's other major galvanized steelmaker, Rio de Janeiro-based CSN (NYSE: SID), reported that sales volumes from its galvanization subsidiary GalvaSud rose from 160,000t in 1Q02 to 179,000t in the same quarter of this year. And revenue per tonne increased from 1,106 reais (currently US$339) to 1,527 reais in the same period. Market observers say that CSN's reported increase in revenue per tonne of galvanized products stems from the impact of the exchange rate, as international prices weigh into final sales prices on the domestic market. CSN sold 128,000t of galvanized products on the Brazilian market in Q1. JOINT VENTURES Higher sales of galvanized products also impact average costs. "In addition to the exchange rate effect, zinc weighed more heavily on average costs due to the growth in sales of galvanized products," Usiminas reported. Analysts have not calculated the exact contribution of galvanized production on steelmakers' margins. "The units are relatively new, therefore with capital costs that have been little depreciated. And it is good to remember that Unigal and GalvaSud are joint ventures involving Brazilian and foreign companies. That is, part of the revenues are accounted for by the foreign partner," said Germano Mendes de Paula, an economics professor from the Federal University of Uberlandia who specializes in the metals industry. Usiminas has Japan's Nippon Steel as a partner in Unigal (60:40 basis), and CSN has Germany's ThyssenKrupp as its partner in GalvaSud (51:49). VEGA DO SUL Brazil will have its third galvanized steel company when Vega do Sul opens for operations on July 3. But the presence of a new mill is unlikely to lead to market cannibalization, according to experts. "Last year, we [Brazil] imported 93,000t of hot-dipped galvanized sheets, and exported 270,000t. In sum, Vega do Sul will not initially tend to increase domestic supply too much but rather reinforce exports of the product," De Paula said. Vega do Sul president Patrick Bardet said the company does not plan to undercut competitors' prices. "Demand is not a problem," he was quoted as saying by AE-Setorial news service. The galvanizing and cold-rolling mill, located in southeast Brazil's Santa Catarina state, forecasts output of 80,000t of galvanized products this year and will have installed capacity of 400,000t/y. Vega do Sul's owners include European steel group Arcelor and Vitoria-based flat steelmaker CST.

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