Avenida Fario Lima 3400
Company Perspectives:
Our mission is to increase value for our shareholders, maintaining ou r position as one of the world's lowest-cost steel producers while ma intaining a high EBITDA margin. With this in mind, we intend to stren gthen our position as a global player, optimizing our infrastructure assets (our mines, ports and railways) and their competitive cost adv antages.
Companhia Siderúrgica Nacional (CSN) is the second-largest ste el producer in Brazil. Its fully integrated manufacturing facilities turn out a broad line of steel products, including slabs, hot- and co ld-rolled plates, sheets, and coils, plus galvanized and tin-coated s teel products for the distribution, packaging, automotive, home-appli ance, and construction industries. It produces about half of all galv anized-steel products sold in Brazil and much of the nation's tin-mil l products, which are used in packaging containers. More than one-fou rth of the company's sales come from exports. CSN is a vertically int egrated company that owns its own iron ore, generates most of its own electricity, and has a stake in the ownership and/or operation of th e rail and port facilities it uses. It has been described as the most cost-competitive steel producer in the world.
Government-Run Behemoth: 1941-92
Steel production in Brazil began in the 1920s and was dominated by a company established with Luxembourg and Brazilian capital. With war c louds gathering over Europe prior to World War II, Brazilian leaders became concerned about securing its supplies of steel, so essential t o manufacturing in this period. About 70 percent of the nation's roll ed-steel products were still being imported. An effort in 1939 to obt ain financing--in exchange for equity--from the United States Steel C orporation for an integrated steel mill foundered under opposition fr om Brazilian nationalists, especially the army. President Getú lio Vargas next invited German industrialists to make an offer. This had the expected effect of catching Washington's attention, and in 19 40 the U.S. Export-Import Bank pledged $20 million in financing. Savings banks and pension funds provided half of the initial capital. The Brazilian treasury purchased all the common stock not subscribed to by the public, and for all practical purposes Companhia Sider&uac ute;rgica Nacional (National Steel Company), founded in 1941, became a government-owned and -operated company.
A virtually uninhabited site about 75 miles west of Rio de Janeiro ha d already been selected for the plant. Volta Redonda was built from s cratch as a paternalistically run company town that also served as CS N headquarters. The company operated the schools and the only hospita l in the city. It built and maintained houses for the workers and cha rged rent well below market value. A 2.5-mile spur was built to link the plant to an existing railway line that carried iron ore from the state of Minais Gerais and imported coal--needed to make coke for the blast furnaces--arriving at Rio de Janeiro's port. A hydroelectric p lant, completed in 1948, was intended to meet the mill's large power needs.
Steel production began in 1946 and, 20 years later, production had re ached about 1.4 million metric tons of ingot steel a year, or about o ne-third of Brazil's output, which had recently been enhanced by the opening of two other large integrated steel mills. Employment was now about 14,000. On a number of occasions, the government ordered CSN t o sell its goods at below-market prices in order to combat inflation, regardless of the effect on the company's own bottom line. It also e ncouraged the company to borrow money abroad, then used the money to meet its own needs.
CSN in the 1970s was, besides, being engaged in steelmaking, dealing commercially in raw materials and supplies, tin, zinc, manganese, and ferroalloy requirements, and transporting. Its capacity was raised t o 1.6 million metric tons of steel a year in 1974 and 2.4 million ton s in 1977. It had foreign offices in New York and Japan and sales of 27 billion cruzeiros (about $930 million) in 1979. This was a boo m decade for Brazilian steelmaking, with the nation vaulting from 18t h to 7th place in world production, and with CSN in the lead.
During the 1980s, by contrast, more steel mills came online in Brazil while national demand stagnated. Moreover, the Brazilian government set steel prices 40 percent below the world price to help other domes tic industries, depriving CSN of perhaps $7 billion in potential revenue. The enterprise suffered the first strike in its history in 1 984; during the next six years, there were 11 more. The worst was in 1988, when three workers were killed by soldiers. Although CSN's prod uction of ingot steel rose from 3.3 million metric tons in 1984 to 4. 1 million tons in 1988, a severe downturn in the Brazilian economy co ntributed to a fall in production to 3.4 million tons in 1989 and onl y 2.7 million tons in 1990. As a result, CSN lost over $1 billion that year on revenue of only $1.76 billion, and it had a debt of $2.6 billion.
During that year Roberto Procópio Lima, Jr., was appointed pre sident of CSN and charged with preparing what the Brazilian business magazine Exame called an "obese elephant" for privatization. H e reduced the bloated work force of 23,800 by 7,000 despite the combi nation of a 31-day strike and arson that cost the company hundreds of millions of dollars. He also cracked down on management, dismissing 545 executives. Lima also took on the networks of suppliers, transpor ters, and subcontractors that were draining CSN of badly needed funds . By encouraging competition, he reduced these costs by 40 percent. A ll contracts with third parties were reviewed. To break the power of the 23 trading companies conducting two-thirds of CSN's export sales, Lima contracted 20 other companies.
Privatized, Sprawling Giant: 1993-2000
Sales fell still further in 1991 because the adoption of lower import duties subjected CSN to stronger competition from foreign steelmaker s. In addition, Brazilian steel sales were suffering from a world eco nomic recession and the fall of the Soviet Union, which had been a bi g buyer. Even so, the company was able to reduce its debt by $1 b illion and to register small profits in 1991 and 1992. CSN was sold a t auction in 1993. The purchaser was Valepar S.A., a consortium in wh ich one of the principal partners was the Vicunha textile group. Othe r members of the consortium included state-owned Companhia Vale do Ri o Doce (CVRD), Brazil's biggest mineral company; Banco Bradesco S.A, Brazil's largest privately owned bank; and Previ, the pension fund ru n by state-owned Banco do Brasil S.A., Brazil's biggest bank. Some 12 percent of the enterprise was set aside for CSN's employees.
CSN produced a record 4.6 million metric tons of ingot steel in 1993 and achieved a profit of $70 million, its largest ever. The fewer but more productive 15,000 workers enjoyed a real increase in wages of 30 percent over 2 years. A six-year modernization program estimate d to cost $900 million was adopted, including construction of a t hermoelectric plant to meet future power needs. However, Lima left th e enterprise in early 1994, since he did not have backing from the ne w owners, who carved up the administration into areas that they indiv idually controlled. Without a strong hand at the rudder, CSN postpone d plans for the new power plant and a decision to dismiss 4,000 worke rs over 3 years, an action deemed necessary to keep the enterprise co mpetitive in controlling expenses. Despite another record profit, the company's return on its liquid net worth was much lower than that of its main privatized rivals, Usinas Siderúrgicas de Minas Gera is S.A. (Usiminas) and Acesita S.A.
This period of indecision ended in 1995, when one of the large shareh olders withdrew from the consortium and Vicunha's chief executive, Be njamin Steinbruch, became CSN's chairman of the board. A young, dynam ic, and extremely ambitious entrepreneur, Steinbruch acquired, in 199 6, a 7 percent interest in newly privatized Light Servicios Eletricid ade S.A., the main power distributor in the state of Rio de Janeiro a nd was chosen to be the utility's chairman. CSN also purchased intere sts in several hydroelectric plants. The following year Valepar paid in excess of $3 billion to purchase the Brazilian government's st ake in CVRD, with Vicunha as the lead partner. Steinbruch now control led both companies as well as Vicunha. CVRD was the world's largest p roducer and exporter of iron ore, and the largest diversified mining company in the Americas. Moreover, it owned about 10 percent of CSN i tself. "Bringing CSN and CVRD together made very good sense," Steinbr uch told Jonathan Wheatley of Business Week in 2000. "Both hav e mining interests, both have steel, both have logistics. It gave us the chance to bring together three sectors in which Brazil is very co mpetitive."
Steinbruch appointed a woman, Maria Sílvia Marques Bastos, to be CSN's chief executive officer at the end of 1998. During that year the company took 51 percent of a joint venture with Germany's Thysse n-Krupp Stahl A.G. to build GalvaSud, a galvanizing plant in Brazil, mainly for the auto sector. It was completed in 2000 in Porto Real Ci ty, Rio de Janeiro. CSN also built a joint-venture cold-rolled strip mill and galvanizing plant for civil construction and home appliances in Araucária City, Paraná.
By 1999 Brazil had fallen into another of its intermittent economic c rises, forcing the nation to devalue its currency, the real. The deva luation made it more difficult for CSN to make payments on the $8 00 million in dollar-denominated debt that Steinbruch had incurred to make acquisitions. He sold CSN's stake in Light in 2000. And, since he had fallen out with Bradesco and Previ, he sold CSN's stake in Val epar to them on the last day of 2000. At the same time, Bradesco and Previ sold their Valepar stakes in CSN to Vicunha for BRL 1.5 billion ($773 million) in debentures. They also won the right to buy iro n ore from CSN's own mines at their option.
New Century, New Challenges
Now more firmly in Steinbruch's hands, CSN was Exame's enterpr ise of the year in 2001. The 238-mw thermoelectric power plant, using as fuel CSN's own industrial gases, was completed in late 1999 in Vo lta Redonda and was supplying 60 percent of the company's needs. Duri ng 1999-2000 two hydroelectric plants--Itá and Igarapava--in w hich CSN held a stake came on line. With the completion of these proj ects, CSN became one of the few Brazilian enterprises to generate not only enough electricity to meet its own needs but to sell to others. The company's considerable investment in infrastructure and logistic s was also bearing fruit. A rehabilitated rail line in which CSN had taken a stake was bringing in, on time, a supply of low-cost iron ore to Volta Redonda from the company's Casa de Pedra mine in Minais Ger ais. Coal and coke were being sent by the railroad to the mill from t he port of Sepetiba, Rio de Janeiro, where CSN held a share in the op erating concession for the coal and container terminals. Another rail line in which CSN held an interest brought limestone and dolomite fr om its Arcos mine to the mill. The steel plant itself had been modern ized at a cost of $1.5 billion.
The enormous gain in productivity yielded bonuses for CSN's now-reduc ed work force of about 9,000 to 10,000. In return, they were held to a code of ethics. In order to combat corruption, the purchasing offic e was moved from Volta Redonda to Sao Paulo. An incentive program tha t included stock options attracted not only well-qualified engineers and other technical personnel--always a company strength--but also co mmercially adept executives. About two-thirds of CSN's 617 women were working in the steel mill, traditionally a masculine venue. It had b een discovered that women were better than men at details such as det ecting flaws in metal sheets. The company's president also provided a feminine touch; since she didn't like the workers' uniforms, she pro moted a competition that resulted, by electronic vote, in a different choice. (In 2002, however, Steinbruch assumed the presidency as well as the chairmanship of CSN.)
Privatized CSN did not please everybody, however. After the company r educed its commitment to Volta Redondo--selling the hospital, for exa mple--attention turned to its woeful environmental record. For more t han half a century CSN had tossed industrial waste into the river tha t supplied the metropolitan region, resulting even in genetic deformi ties in children. Gases spewed out by the mill's chimneys were held r esponsible for compromising the immune systems of the population in g eneral. Landfills contained solid wastes. CSN agreed to spend BRL 180 million (about $60 million) on 133 projects. The company install ed a system installed to convert industrial gases for cogeneration, s old the solid waste for pavement, and filtered the liquid waste. Loca l residents remained unhappy, however. CSN owned almost 20 percent of the land in Volta Redonda and, under Steinbruch, fenced in several c ommunity soccer fields, closed an environmental reserve, and reposses sed areas mostly used by retired mill workers to grow vegetables.
CSN purchased bankrupt Heartland Steel Inc. of Terre Haute, Indiana, in 2001 for $55 million plus the assumption of its $19 millio n in debts. It was renamed CSN LLC. The purpose of the acquisition wa s to gain a foothold in the United States, sending excess slabs of st eel to Heartland's cold-rolling mill for conversion to value-added pr oducts. Steinbruch explained to Nelson Blecher of Exame, "Our major strategy is to make CSN a multinational. We have to compete in the world market as an equal in order to stay in business. That is th e challenge."
Widely honored for its efficiency and low cost of production, CSN als o earned a reputation as a cash cow for its shareholders--especially for Vicunha Siderúrgica S.A., which now owned 46.5 percent of CSN. The financing of Vicunha's buyout of its partners was met from C SN's profits; in fact, in 2000-01 CSN paid out more in dividends than it collected in profits. This created new financial pressures that S teinbruch met by selling half of CSN's majority stake in the It&aacut e; power plant in 2001. He sold its interest in the smaller of its tw o rail lines in 2003. He also proposed, in 2002, a merger with the Co rus Group, the British-based second-largest steelmaker in Europe. The deal foundered, with each party blaming the other. It would have cre ated the fifth-largest steelmaker in the world, with Corus holding th e larger share but assuming $2.66 billion in debt from CSN.
Corus had been tempted to merge with CSN in part because of the prosp ect of gaining access to cheap iron ore from the huge Casa de Pedra m ine. China's voracious appetite for iron ore to feed its steel mills was driving up prices for the mineral and thereby helping to improve CSN's bottom line. The company made itself self-sufficient in tin by acquiring Cia. Metalic Nordeste, owner of a tin mine and smelter, in 2002 and purchased a half-share in Lusosider S.A., a Portuguese manuf acturer of galvanized metal products and tin plate, in 2003. In 2004 CSN enjoyed its best year ever, earning $855 million on revenues of $3.9 billion. That year it purchased Thyssen-Krupp's share of the GalvaSud plant. CSN produced 5.6 million metric tons of crude ste el in 2004, 17 percent of Brazil's output. Nevertheless, it lost its longstanding leadership in steel output and revenue in 2003, when Ger dau S.A. merged with Aços Minas Gerais S.A. to form Gerdau A&c cedil;ominas S.A. Vicunha Siderúrgica S.A. held 40.5 percent o f the company in 2005, having recently sold a 6 percent stake to a go vernment development agency.
Principal Subsidiaries: Cia. Metalic Nordeste; CSN Energia S.A .; CSN Panama S.A. (Panama); CSN Steel Corporation (United States); G alvaSud S.A.; Indústria Nacional de Aços Laminados S.A. ; Lusosider Projectos Siderúrgicos S.A. (Portugal; 50%).
Principal Competitors: Companhia Vale do Rio Doce S.A.; Gerdau S.A.; Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas).
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