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 companies.
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 trader.
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 this year.
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 2010.
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.