Gerdau S.A. - Company Profile, Information, Business Description, History, Background Information on Gerdau S.A.

Avenida Farrapos, 1811
90220-005 Porto Alegre
Rio Grande do Sul

Company Perspectives:

Vision: To be an International and World Class Steel Company. Mission: Gerdau is an organization focused in the steel business with a mission to satisfy customers' needs, add value to shareholders, committed to fulfilling people's needs and contributing to the sustainable development of society.

History of Gerdau S.A.

A fast-rising star on the international steel market, Gerdau S.A. has long held the title of the leading producer of long steel products in Brazil and Latin America. The company is also among the top three Brazilian producers of crude steel, and also produces a range of specialty steels, principally for the automotive industry. Overall, Gerdau ranks among the top 25 global steel producers. Gerdau also manufactures a variety of finished products, including nails--the company's original product, a segment in which Gerdau is the world leader--wire, wire mesh, and wire fencing. Through subsidiary Comercial Gerdau, the company is also Brazil's leading distributor of flat steel products. Gerdau has long specialized in the operation of minimills, which use electric arc furnaces to produce steel from scrap and other metals. The company also operates a small number of traditional blast furnaces, which produce steel from raw iron ore, especially through its controlling stake in A├žominos, acquired in 2002. Much of Gerdau's growth lies in a steady series of domestic and international acquisitions which had enabled it to build an international network of manufacturing facilities throughout South America and in Canada and the United States as well. In that latter market, the company controls 75 percent of AmeriSteel, based in Florida. That 1999 acquisition helped boost Gerdau's total production past seven million tons per year. Gerdau posted R 7.5 billion ($3.2 billion) in revenues in 2002. Listed on the Brazil and New York stock exchanges, the company remains firmly controlled by the founding Gerdau-Johannpeter family, who hold more than 70 percent of Gerdau's voting rights through the family holding company, Metal├║rgica Gerdau.

Nailing the Brazilian Market: Early 20th Century

Johann Heinrich Kasper Gerdau, a native of Hamburg, Germany, immigrated to Brazil in 1869, and originally established himself as a trader, and then a merchant, founding a general store in Cachoeira do Sul. Around 1900, Gerdau, who had by then adopted the Brazilian first name Joao, moved to Porto Alegre. There, Gerdau entered a new business, buying up the nail factory Pontas de Paris in 1901. Gerdau's business interests also included furniture manufacture, through Gerdau M├│veis.

Gerdau's son Hugo took over the nail operation in 1907. Educated in Europe, the younger Gerdau continued to make trips both to Europe and to the United States, returning to Brazil with new steelmaking techniques and production processes. In this way, Gerdau vastly improved the quality of nails available in Brazil, and before long the company became the country's leading nail producer, adding a second production facility in Passo Fundo in 1933. By the end of the 20th century, Pontas de Paris company had become the largest nail manufacturer in the world.

The Gerdau family continued to explore varied business interests. Hugo Gerdau, for example, was a founding partner in Companhia Geral de Industrias, which manufactured stoves under the Geral brand name. Gerdau also participated in the creation of what later became the Federa├žao das Ind├║strias do Estado do Rio Grande do Sul (FIERGS, or the Federation of Industries of Rio Grande do Sul). Yet it was through Hugo's daughter's marriage that the company became one of Brazil's industrial giants.

Helda Gerdau married German-born Curt Johannpeter, who first came to Brazil as a branch inspector for Deutsche Bank's German Transatlantic Bank. Johannpeter joined the Gerdau family in the 1930s, then took over the leadership of the nail company in 1946. The company went public the following year, adopting the name Fábrica de Pregos Hugo Gerdau.

Faced with the shortage of raw materials in the aftermath of World War II, Johannpeter led Gerdau into steel production itself, thereby ensuring its nail operation's supply. In 1948, Gerdau bought Porto Alegre-based Sider├║rgica Riograndense SA, which had been founded ten years earlier. By the late 1950s, steel production had grown into Gerdau's primary area of interest. In 1957, the company added a second mill, in Sapucaia do Sul. Four years later, the company added a continuous ingot casting unit, the first in Latin America, which enabled it to boost its production levels and the quality of its steel products.

A commitment to quality rapidly became a Gerdau hallmark, as the company set out to match European and North American quality standards. The company's growing influence in the domestic market, particularly with the construction of a new and modern nail production plant in Passo Fundo in 1961, forced Gerdau's suppliers to meet company-imposed standards of quality. Gerdau began adding computer technology in the mid-1960s, and in 1968 was one of the first in Brazil to incorporate computer-controlled production processes.

Domestic Steel Leader in the 1970s

Gerdau took Sider├║rgica Riograndense public in 1966, although the group retained majority control over its growing steel operation. Gerdau then entered a period of domestic expansion and diversification. In 1967, the company acquired Sao Judas Tadeu Wire Factory, located in Sao Paulo, expanding to its own nail production and adding wire production facilities as well. In another diversification move, Gerdau purchased Ind├║stria de Arames Sao Judas Tadeu S.A., also in Sao Paulo, in 1971. That company, which changed its name to Comercial Gerdau, became Brazil's largest distributor of long and flat steels, developing a national network of more than 60 branch offices.

Gerdau also stepped up its steel production at the end of the 1960s and into the 1970s. In 1969, the company acquired a steel producer in Recife, Sider├║rgica A├žonorte. Two years later, Gerdau formed a joint venture with August Thyssen H├╝ette, based in Germany, to build a new steel mill in Rio de Janeiro. That mill, called Cosiqua, developed into the largest long steel production facility in Latin America. Gerdau took full control of Cosiqua in 1979, then launched it as a public company in 1984.

In the meantime, Gerdau continued its Brazilian expansion, adding the Guaira mill, one of the first in the state of Paraná, in the south of the country, in 1971, then adding another steel producer, Comesa, in 1974. In the early 1980s, Gerdau built two new steel mills, Cearense, in Ceará, and Araucária, in Paraná.

Concurrent with the growth in the company's steel production was its diversification into related businesses. Such was the case with its participation in the creation of Seiva SA Florestas e Indústrias, and its acquisition of CIFSUL, which added a forestry component to the group in the early 1970s, ensuring its fuel supply. Gerdau had also pioneered the new "minimill" concept, utilizing electric arc furnaces rather than traditional blast furnaces. The minimills enabled steel companies to produce new steel products from scrap metals. The need for scrap in turn led Gerdau into that market, with the creation of Gerdau Metálicos in 1980. That company developed into the largest scrap collector, processor, and reseller in the Latin American market.

By the early 1980s, Gerdau had become Brazil's largest steel producer. Yet the company's nearly 50 percent market share left it little room for future expansion at home. At the same time, the company's focus on the domestic market left it highly exposed to fluctuations in the often volatile Brazilian market. The company, now under the leadership of Curt Johannpeter's four sons, Klaus, Germano, Jorge, and Frederico, decided to take the risk and expand onto the international market.

International Expansion in the 1990s

Although Gerdau's first purchase of a foreign company came in 1981, when it acquired Uruguay's Laisa steel mill, its true international growth started at the end of the 1980s, with the acquisition of Canada's Courtice Steel Inc. in 1989. Three years later, Gerdau added to its Latin American operations with the purchase of two Chilean steelmakers, Indac and Aza, which were consolidated into a single company, Gerdau Aza. In 1995, Gerdau returned to Canada, purchasing Manitoba Rolling Mills Inc., which was then renamed Gerdau MRM. Two years later, Gerdau entered Argentina, acquiring Sociedad Industrial Puntana SA, or SIPSA. The following year, Gerdau added a one-third stake in that country's Sipar Laminacion de Aceros as well.

Not all of Gerdau's growth occurred outside of Brazil during this period. Indeed, the company continued to expand its domestic operations throughout the early 1990s. Gerdau took advantage of the privatization drive of the Brazilian government, picking up a number of formerly state-controlled steel mills, including the Barao de Cacais mill in 1988, Usina Sider├║rgica da Bahia S.A. in Usiba in 1989, and then Companhia Sider├║rgica do Nordeste and A├žos Finos Piratini S.A. in 1991. The last-named business, which focused on the specialty steels market, enabled Gerdau to add a range of high value-added products to its existing steel products lines.

Gerdau's acquisition drive moved to Divin├│polis in 1994, where it bought German-controlled Korf GmbH and its steelworks Cia. Sider├║rgica Pains S.A. That purchase subjected Gerdau to investigation by Brazil's mergers and monopolies body; Gerdau ultimately gained permission to proceed with the acquisition. Subsequently, Gerdau sold off the rest of the Korf operations and renamed the Pains mill Gerdau Divin├│polis. Domestic expansion continued into the late 1990s with the purchase of a minority stake in semi-finished products group A├žominos. Over the next several years, Gerdau increased its share of A├žominos to nearly 37 percent in 1999, and finally to 87 percent in 2002, including more than 79 percent of voting rights.

By the mid-1990s, Gerdau had grown into an internationally operating group of more than 28 companies--including its own bank, launched in 1995 to provide financial services to its steel customers--and six publicly listed companies. In 1995, the company began a restructuring process in order to simplify its organizational structure. By 1997, Gerdau had completed the reorganization, merging its businesses into a single company, Gerdau S.A., listed on the Brazil stock exchange. Gerdau S.A. nonetheless remained under the control of the Gerdau family, whose members held more than 70 percent of the voting rights through their Metal├║rgica Gerdau holding company. In 1999, Gerdau placed its stock on the New York Stock Exchange as well.

Despite its increasingly international operations, Gerdau remained a small player in the global steel market, ranked at the very bottom of the world's top 50 steel companies. Foreign sales represented just 10 percent of the group's total. In 1999, however, Gerdau took a leap into the big leagues when it paid Japan's Kyoei Steel $262 million to take over 75 percent of Florida-based AmeriSteel. The deal boosted Gerdau's total production past seven million tons per year, and transformed it into the second largest producer of concrete reinforcing bars. The addition of AmeriSteel allowed Gerdau to climb to the world's top 25 steel companies; it also shifted the balance of the group's geographic sales, as international revenues now reached 36 percent of the group's total.

Gerdau immediately began investing in its new U.S. business, pouring more than $340 million to expand production at AmeriSteel's four minimills by some 25 percent. At the same time, Gerdau's holding of AmeriSteel increased to 85 percent.

Gerdau's early internationalization was credited with helping the company bypass Brazil's economic crisis in the late 1990s. By the early 2000s, as the country's economy revived, Gerdau's good health placed it in a strong position to increase its clout in the domestic market. The company continued to invest in its home market, installing new rolling equipment at its A├žos Finos Piratini unit to double its specialty steel capacity. The company also earmarked some $400 million for the construction of a new rebar plant in Sao Paulo. With a capacity of 1.1 million tons, the new plant was scheduled to begin operations as early as 2004.

After increasing its stake in A├žominos past 85 percent in 2002, Gerdau began looking for further acquisitions. Yet the company remained focused on the Americas, judging European steel production as too expensive a market to enter, and the fast-growing Asian steel market as too culturally different. At the end of 2002, Gerdau found its next target, Toronto's Co-Steel, which merged into AmeriSteel in October of that year. The new unit was then renamed AmeriSteel Whitby. In 2003, Gerdau announced a plan to spend $60 million in order to integrate and improve its expanded North American operation. After more than 100 years, Gerdau appeared to have nailed down its place in the global steel market.

Principal Subsidiaries: Aceros Cox S.A. (Chile); A├žominas Gerais S.A. (79%); Armafer Servi├žos de Constru├žao Ltda.; Gerdau AmeriSteel Corporation (Canada; 74%); Gerdau USA Inc.; AmeriSteel Corp. (U.S.A.; 74 85%); AmeriSteel Bright Bar Inc. (U.S.A.; 74%); Gerdau AmeriSteel MRM Special Sections Inc. (Canada; 74%); Gerdau AmeriSteel Cambridge Inc. (Canada; 74%); Gerdau AmeriSteel Perth Amboy Inc. (U.S.A.; 74%); Gerdau AmeriSteel Sayreville Inc. (U.S.A.; 74%); Gerdau Aza S.A. (Chile); Gerdau Internacional Emprendimentos Ltda. (Brazil); Gerdau GTL Spain S.L. (Spain); Gerdau Laisa S.A. (Uruguay); Seiva S.A. - Florestas e Ind├║strias.

Principal Competitors: Eclipse Foundries Ltd.; Panzhihua Iron and Steel Co.; Ishikawajima-Harima Heavy Industries Company Ltd.; C Grossmann Eisen- u Stahlwerk AG; Benxi Iron and Steel Co.; Forjas de Santa Clara CA; Chongqing Special Steel Group Co.; Fiat S.p.A.; Xinyu Steel and Iron Plant General of Jiangxi; Krivorozhstal Krivoy Rog; Aceros Chile S.A.; Cargill Inc.; Ispat Karmet Steel Plant.


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