SAO PAULO, Brazil The nationalization of Venezuela's
hot-briquetted iron (HBI) producers was supposed to take only
60 days, according to a presidential decree issued in mid-July,
but by early October nothing had been said about the status of
negotiations with the country's privately owned companies. Even
the manufacturers weren't talking.
In the meantime, HBI export prices have remained very low
due to sluggish demand in the international market, and local
producers are waiting for a resurgence of the North American
market to help lift prices.
The story began in May, when Venezuela's president, Hugo
Chávez, announced in a speech the nationalization of the
country's four private HBI producers Complejo
Siderúrgica de Guayana CA (Comsigua), Materiales
Siderúrgicos SA (Matesi), Orinoco Iron SCS and
Venezolana de Prerreducidos Caroní CA (Venprecar).
Together, the four companies are capable of producing as much
as 6 million tonnes of HBI annually.
Presidential decree No. 6796 was released two months later
on July 14. According to the text, transition committees would
be created the following day to work within each of the HBI
companies-as well as within the country's sole seamless steel
producer, TenarisTavsa-and take "operational control
immediately." The companies were given 60 days to reach a price
agreement with the government, with an extension of a further
60 days upon mutual agreement.
So are the parties already in the extended period? Sources
at some of the HBI manufacturers reckon that, yes, they would
be, although the committees actually started working at the
companies in mid-August, so the 60 days could technically begin
to be counted from that date.
Luxembourg-based Tenaris SA, for example, which owns 50.2
percent of Matesi, said that the Venezuelan government had
"unilaterally assumed exclusive control over the assets" of the
plant starting Aug. 17.
Moreover, the sources said that the committees sometimes
take several days to show up at the companies. "It seems a slow
process, but no one knows," an executive at Matesi said.
Senior executives at all four HBI producers refused to
discuss the transition, although some have said there is a lack
of information regarding the committees' work.
The question of timing would not be that crucial were it not
for a clause in the presidential decree stating that if no
price agreement is reached in the 60-day period (or during the
60-day extension), the government will expropriate the
If past is precedent, however, there is no need to panic.
Negotiations between Ternium SA and the Venezuelan government
over compensation for the nationalization of Siderurgica del
Orinoco CA (Sidor) took months. And in the end, Ternium agreed
to accept $1.97 billion for the transfer of its shares in the
steelmaker. Ternium is controlled by Techint Group, the
Luxembourg-based engineering, manufacturing and construction
conglomerate whose steel interests also include Tenaris.
Precedent or not, tension always hangs heavy in the air when
the specter of a government takeover looms. And nationalization
isn't the only worry plaguing Venezuela's HBI producers.
F.o.b. prices for the product have hovered in a range of
$200 to $230 per tonne over the past few months while the cost
of actually producing HBI in Venezuela typically falls slightly
above that level.
China and Europe continue to purchase the material, but
freight rates have been climbing and that "complicates the
possibility of getting better prices," according to a local
The main hope for the producers is that U.S. consumers of
HBI resume buying, in which case f.o.b. prices would rise
beyond the $230-per-tonne level to around $250 per tonne.
Prices have been anemic since the beginning of the global
economic crisis. Tags were above $700 per tonne f.o.b. in July
2008 but dipped to as low as $175 to $180 per tonne in April of
As a result, Comsigua, Orinoco Iron and Venprecar have been
operating at reduced capacity.
Matesi has been idled since November last year due to a
series of labor and industrial problems, and local reports
suggest it won't resume operations until the first quarter of
The Venezuelan HBI market is not very bright at the moment
and the future of the industry's ownership and health remains
enveloped in clouds.