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CSN and CSA | Men of Steel Seek Port in Storm


Source: Brasil Econômico.

The imminent sale of the controling bloc of shares in Companhia Siderúrgica do Atlântico (CSA) will likely  place  Companhia Siderúrgica Nacional (CSN) and  Vale on opposite sides once again. Interested in using CSA’s port to ship its production, Benjamin Steinbruch and company will have to convince its mining and steel-making partner, which has veto power over the business, to permit a competitor to access a modern logistics system, located near principal mining sources and installations in the Southeast that will enable it to attract very large ships.

The port is considered by CSN to be a strategic asset that has not succeeded in launching its principal logistics project in the region: the Lago da Pedra private port, planned in the last decade and currently not part of the steelmakers’s plans.

With Lago da Pedra, the company sought to extend its capacity for shipping steel products and its growing production of iron ore, an operation that has grown in importance, to the extent that it surpassed earnings from steel last year.

Sources say  that CSN and German company ThyssenKrupp are close to a deal that would transfer Steel Americas, whch controls CSA and a rolling mill in the U.S.

The deal would bring to an end a soap opera that has lasted at least a year. Benjamin Steinbruch and company foresee CSN taking over two-thirds of the Brazilian plant, leaving Vale and Thyssen to divide the other third — the mining concern would thereby reduce  its current shareholding of 27%.

The companies are not commenting on the matter, but market rumor has it that the transaction would involve some US$ 3.5 billion. The deal would first have to be approved by Vale, however, which has repeatedly said it had not been not consulted  and will not let go of its role as exclusive iron ore provider to CSA.

Close observers say the major  bone of contention is use of the port, which has two types of berth: one for the import of carbon and coal and another for the export of finished steel plates.

” CSN needs to scale up its exports and the CSA port is now ready, we don’t need any new investments,” said a source close to the company. The Lago da Pedra project was budgeted at  US$ 1 billion to build berths and freight yards with an annual capacity of 60 million tons of ore, 12 million tons of coal, and 11 million tons of finished steel products.

After talks broke down, CSN joined Gerdau and Petrobras in a new project, which also provided for the building of terminals to handle steel products and ore but which has not moved forward.

Hence, the strategic importance of the CSA terminal. Techint, which has engaged in talks with  ThyssenKrupp, values the assets as an alternative for exporting the production of steelmaker Usiminas — this despite having a contract with Porto Sudeste, under construction by MMX of Eike Batista’s X Group, which should have been ready late last year.

Eike has upset the plans of many, many investors.

CSN operates two terminals at the Port of   Itaguaí, close to CSA, with berths for the shipment of ore, containers and general cargo and has expansion plans. Vale operates a terminal further south, called Ilha de Guaíba, through which it ships iron ore from its operations in Minas Gerais.

In January of this year, Valor reported that CSN was viewed as a viable target for nationalization:

The National Bank of Social and Economic Development  (BNDES) could sink up to R$ 4 billion to support Companhia Siderúrgica Nacional (CSN) and its plan to acquire (1) assets of the ThyssenKrupp group in Brazil, (2) CSA, and (3), in the U.S., Calvert Steel of Alabama. Valor learned from sources close t the negotiations say that a proposal by CSN was met favorably by BNDES management and enjoys the good will of the government.

The idea is to strengthen a group of Brazilian steelmakers and to nationalize control of CSA, currently held by the Germans. The former CST and Acesita continue in power at the Anglo-Indian ArcelorMittal, and Usiminas last year passed its assets to Argentines and Japanese. In both cases,  CSN tried to buy the assets but was defeated.

Reuters reported in September 2012:

SAO PAULO, Sept 28 (Reuters) – The Brazilian government may finance a plan by local steelmaker CSN to buy ThyssenKrupp’s assets in Brazil and the United States, newspaper Valor Econômico said on Friday.

CSN is trying to convince BNDES, Brazil’s state development bank, to finance ThyssenKrupp’s money-losing slab-making mill CSA in Rio de Janeiro and a lamination plant in Alabama, Valor said, citing a source close to the deal.

Taking a look at Wikipedia to see if the entry has any current information:

Being a Brazilian company, principal competitive advantages of CSN are its abundant supply of low-cost, high-grade iron ore, low-cost labor and energy resources, and good quality of its infrastructure (railways and ports, mainly). It is also benefited from a vast internal market present in Brazil with a large growth potential. As a result of these advantages, CSN has one of the lowest steel production costs in the world.

The entry is six years out of date.

Still, the M&A negotiations of CSN are perhaps an excellent example of the “State-dependent capitalism” lamented by Brazilian blogger Artur Taguti, who writes,

The example of mobile phone and internet service reveal that the regulatory agencies are not capable of preventing concessionaires from booking profit margins at the expense of the consumer.

The demonstrations of June show that the public is tired of handing over public services to private-sector big business, promoting concessions that harm the economy and the national interest. It is time for the State to renew its investments in infrastructure and liberate the user from the abusive fees that weigh so heavily on his wallet. 

We can’t continue to tolerate this business class that lives off BNDES and public concessions. Let them learn a little bit about what capitalism is and what it is to manage risk.

This is an interesting take on the situation. The Brazilian government does often play the role of a landscaper in the garden of earthly investments — some have compared it to the “capitalism of the state” in Beijing and Havana. It seems to privatize and nationalize at will, no matter which of the major political factions — the neoliberal PSDB and the post-industial PT — are in power.

The PSDB is fustigated for its privatizations in the 1990s, but hangs on to state ownership of utilities, such as Sabesp. The PT is fustigated for its populism, but in the economic area is criticized for its extensive use of PPPs — public-private partnerships, similar to those used  by their adversaries though imposing stricter conditions.