Tough competition, environmental pressures
and rising costs are posing some hard questions for steel
producers about where to site new greenfield projects. Mills
looking for a favorable economic and political environment and,
crucially, access to raw materials are increasingly turning
their attention to Brazil.
The steel sector in Brazil looks set to surge
on the back of strong domestic and international demand. The
Instituto Brasileiro de Siderurgia (IBS), Brazil's steel
institute, said in May that consumption of steel products in
the country is expected to nearly double to 40 million tonnes
by 2015 from 22 million tonnes in 2007. IBS also estimated that
investments of about $32.9 billion should increase the
country's steelmaking capacity to 63 million tonnes by 2013
from 41 million tonnes last year.
But can Brazil take on all of the new
projects being planned within its territory? The answer is most
likely yes. The country's major advantage is access to
plentiful, high-grade iron ore reserves, something which few
other steelmaking nations can boast. Brazil also has an
extensive coastline, making export business much easier.
State governments are holding out carrots to
attract new projects-such as the fiscal incentives recently
offered by Santa Catarina state to Spanish steel group
Cía. Española de Laminación SL (Celsa),
which is considering building a long-products mill there-while
Brazil's national development bank, Banco Nacional de
Desenvolvimento Econômico e Social, has shown that it's
willing to fund new mills, as it did recently for Brazilian
metals producer Votorantim Metais Ltda.
The country is home to the world's largest
iron ore producer, Rio de Janeiro-based miner Vale, which is
facing tough challenges to expand production to keep up with
the increasing appetite from the global steelmaking industry.
Obstacles include securing environmental licensing to expand
iron ore output, periods of heavy rains and protests at its
But so far Vale has easily been attracting
major steelmakers to build new mills in Brazil, such as
Germany's ThyssenKrupp Steel AG, which has set up a joint
venture with Vale for a 5-million-tonne-per-year slab mill in
Rio de Janeiro, due to start operating next year. Another large
steelmaker, China's Baosteel Group Corp. Ltd., has a joint
venture with the miner to build a 5-million-tonne-per-year slab
mill in Espírito Santo state.
With prices of iron ore surging, steelmakers
have an obvious motive to secure captive resources of the
material. This is the model followed by Brazilian steelmaker
Usinas Siderurgicas de Minas Gerais SA (Usiminas), which
earlier this year acquired four mines in Minas Gerais state
previously owned by local mining group J. Mendes Ltda. Usiminas
recently announced plans to build a 5-million-tonne-per-year
slab project due to start operating in 2011 at a capacity of
2.5 million tonnes per year and ramping up to full capacity the
following year. Around 60 percent of production from the new
plant will be earmarked for export.
It's not the only Brazilian mill planning to
expand. Flat steel producer Cia. Siderúrgica Nacional
(CSN) will be busy in the future with as many as three new
steel projects. It plans to set up new facilities in Rio de
Janeiro and Minas Gerais states, and recently disclosed plans
to build yet another plant in northeast Pernambuco state. The
steelmaker owns a valuable asset, the Casa de Pedra iron ore
mine, which is expected to feed its new projects and also the
blast furnaces of steelmakers around the world.
Meanwhile, Grupo Gerdau SA-known for its many
acquisitions over the past few years-also is studying plans to
install a new plant in the state of Pernambuco. And still on
the new projects list, Votorantim Metais is developing a
1-million-tonne-per-year long-products steel mill in Rio de
Janeiro, due to begin operating in 2009.
Of course, there are challenges, too. A weak
U.S. dollar, in addition to the rising prices of steelmaking
and mining equipment-as well as uncertainties about its
availability-could affect the viability of some of the new
projects. But this is something that only time will tell. For
now, things are moving forward in the Land of Carnival.