Sidenor:--adjusting its portfolio in Latin America: Spanish steelmaker Sidenor has rationalised...

Sidenor Corp SA, the Spanish company that claims to be among the world leaders in special long steel products, together with Daido (Japan) and Corus Engineering Steels (UK); started to invest in Latin America in the late-1990s. Because the region has received an impressive volume of Spanish

Looking at the steel industry closely, three international newcomers have arrived in Latin America in the post-privatisation period: Usinor (now Arcelor), Sidenor and NatSteel of Singapore. In a very simplistic way, Sidenor's trajectory can be considered as an intermediate experience between the two others. On the one hand, Arcelor has been continuously enlarging its interests in Latin America. Firstly, in 1998, (as Usinor) it acquired a direct stake in the special steel producer Acesita and through it an indirect participation in Companhia Siderurgica de Tubarao (CST), at that time producing only slabs. Because of the merger of Usinor, Arbed and Aceralia to form Arcelor, it took over control of Belgo-Mineira (carbon long products), which ultimately took over Acindar (an Argentinean carbon long steel producer). Then Arcelor constructed the finishing facility Vega do Sul and became the majority shareholder in CST. It is highly probable that Arcelor will become the majority shareholder of Acesita during this year too. Thus, Arcelor has investments in two countries (Brazil and Argentina) and in three different markets (carbon flat steel, carbon long steel and special flat steel). Moreover, it has not disposed of any of its interests yet.

In contrast, NatSteel used to be an important--but not the majority--shareholder of Acominas, mainly focused on billets and blooms. NatSteel held a stake in Acominas in the period 1997-2002 but has since sold this.

In the case of Sidenor, during 2004 it sold two of the three businesses that it had purchased in Latin America during 1999-2000. This can be interpreted as a partial retreat, but still leaves the company with some 850kt of production capacity in Brazil.

Sidenor has invested in two Latin American countries, Mexico and Brazil. In Mexico, in October 1999, it bought a 51% stake in Atlax and Metamex for a consideration of $35M. At that time, Atlax was operating a 500kt/y EAF but producing at 400kt/y. Metamex's output was about 33kt--35% cold drawn bars and 65% peeled bars. With that acquisition, Sidenor's global annual production surpassed 1Mt/y.

In the following years, Sidenor revealed that its strategy concerning NAFTA countries would consist of increasing its Mexican operations and acquiring plants in the USA. Indeed, Atlax commissioned a 400kt special steel bar mill. Additionally, in early 2001, Sidenor announced that it would invest $60M in its Mexican operations. One of the main goals was to double production at Metamex to some 60kt/y. Although Sidenor had tried to buy American Steel & Wire (AS&W) and Republic Technologies International (RTI) in 2002, it failed in its attempt to acquire a US plant.

According to Sidenor, to be competitive in the NAFTA region, a critical production level of between 750kt and 1Mt must be achieved. As it was unable to reach this profile, it decided to dispose of the Mexican operations. In May 2004, Sidenor announced its intention to sell Atlax and Metamex to Grupo Simec, a subsidiary of Industrias Campos Hermanos (ICH, Mexico). The deal was approved by the antitrust authority in July. Atlax operated steelmaking facilities with an output of 295kt last year. around half of which was special steels and the balance various long steel products. It operated with 40% idle capacity. Metamex's processed output amounted to 149kt/y. Combined turnover of the two plants was $109M, with 790 employees. Financial terms were not disclosed but ICH said the deal involved no assumption of debt on the part of Grupo Simec or ICH.

In the case of Brazil, Sidenor acquired Acos Villares in August 2000, which was (and continues to be) focused on special long steel. The transaction involved a capital injection of $80M, in which Sidenor contributed with $55M in return for 58% of the total capital and 64% of the voting capital. The Brazilian development bank BNDES injected $22M and rescheduled Acos Villares' debts. As a consequence of the transaction, Sidenor took over Villares Metals, a subsidiary of Acos Villares dedicated to high alloy special steels, including among others, tool steel, high-speed steel, valve steel and stainless steel.

After its acquisition, Acos Villares has engaged in an aggressive modernisation plan. It has invested approximately $135M in the period 2000-2004, mainly to expand engineering steel production. In its largest mill, the Pindamonhangaba Works, a $100M modernisation package involves new equipment, such as a ladle furnace, a vacuum degasifier, a continuous casting machine and a sizing block for the existing bar mill. Following these modifications and new equipment, Pindamonhangaba's installed capacity has increased from 500kt/y in 2000 to 720kt/y currently. The remaining $35M was spent in Acos Villares' Mogi das Cruzes Works. Another segment attended to by Acos Villares were the manufacture of rolls for rolling mills. In the period 2000-2004, it received investments that totalled $26M for expanding its capacity by 50% to reach 36kt/y.

Nevertheless, in March 2004, Sidenor sold part of the group, special steel producer Villares Metals, to Bochler-Uddeholm AG (Austria), which paid $74M for 100% of the shares. Villares Metals operates the Sumare Works and shares Sorocaba Works with Acos Villares. Last year, it had sales of $184.4M and pre-tax profits of $8.0M, with about 1440 employees. Sidenor's justification for disposing Villares Metals were based on two main factors:

Its focus on just two markets: engineering steel and rolls for rolling mills. Indeed, Villares Metals used to be Sidenor's only business unit that produced high alloy steel in a substantial quantity (80kt/y capacity.);

Financial concerns: with the transaction, Acos Villares' net debts diminished by 35% to reach around $138M. The new owner of Villares Metals intends to concentrate all of its operations at Sumare Works within a three-year period, ratifying a decision that had already been taken by Acos Villares. Until then, Acos Villares and Villares Metals will share the Sorocaba Works.

After the disposal of Atlax, Metamex and Villares Metals, Sidenor's presence in Latin America is now restricted to Acos Villares, which has a current capacity of 830kt/y. This is a similar scale to Sidenor's operations in its three mills in Spain. Therefore, in both Brazil and Spain, the necessary critical production level defined by the company has been achieved.

Germano Mendes De Paula, Lecturer in Economics, Federal University of Uberlandia, Brazil, e-mail germano@ufu.br