Major steel groups move in on Central America/Caribbean market

Transcription

1 Issue December Major steel groups move in on Central America/Caribbean market As industry consolidation spreads across Latin America, the relatively small markets of Central America and the Caribbean have been attracting the attention of regional steel leaders like Gerdau, Ternium and ArcelorMittal. Central America and the Caribbean are the Latin American steel industry's latest area of focus for consolidation, and the main local players ArcelorMittal, Gerdau and Ternium have already made their first moves. There are only a handful of companies in the region with melting capacity ArcelorMittal's Point Lisas in Trinidad and Tobago, Cuba s Antillana de Aceros, Aceros de Guatemala, and El Salvador's Corinca. ArcelorMittal (AM) has created a sucessful scheme to produce long products locally using its Laminadora Costarricense partnership in Costa Rica to roll surplus billet from its steelmaking facilities in Point Lisas and Mexico. In addition, it has another plant in Costa Rica producing wire and mesh products. We are also improving our portfolio, an executive from AM Costa Rica tells Steel Business Briefing. Laminadora Costarricense s output now includes not only bar and rebar, but profiles, merchant bar, angles and other products.the operation is expected to reach its full Table 1 Regional long products demand Country Consumption (t/y) Costa Rica 168,000 Cuba 300,000 Dominican Republic 240,000 El Salvador 144,000 Guatemala 384,000 Honduras 108,000 Nicaragua 84,000 Panama 204,000 Total (incl other countries*) 1,800,000 Source: SBB, ArcelorMittal, Acinox, Inca *SBB estimate capacity by 2010, which means more than 400,000 t/y of rolled long products will be sold in the region. The Central American/ Caribbean markets could grow to around 2m t/y of longs Geographical proximity also makes AM Costa Rica the obvious supplier to neighbouring Panama, where steel demand said to be growing quickly. But although this global steelmaker s efforts in Costa Rica could make it the main local supplier of long products, there could be competition looming. Gerdau's partnership in the Dominican Republic Industrias Nacionales C por A (Inca) has almost the same capacity as Laminadora Costarricense. The question is whether Gerdau can supply Inca with billet as cheaply as AM supplies Laminadora Costarricense. That the Central American and Caribbean steel markets could grow to consume around 2m t/y of long products in the coming years (see table 1 for present demand levels), means an opportunity for both companies. Moreover, both have plants in Mexico which could easily supply the region. Also, Talleres y Aceros, an independent steelmaking company, has sold rebar to Belize and Honduras. Flat-rolled consolidation Meanwhile, Ternium is likely to be the main consolidator in flats and high-value products although it has an unexpected competitor from Colombia in the shape of the Acesco group. Even though Ternium has acquired Mexico s Imsa, the jewel in the crown (with control over HDG Edited by Paul Millbank Welcome to SBB Insight Both North and South America are major steel producing and consuming regions whose activities have an impact on the world stage. Sandwiched in between them are the string of small countries that make up Central America and the Caribbean. This is a small and somewhat fragmented steel market. It is served from within by rolling and finishing mills that are often reliant for their feedstock on producers to the north or south because of the limited size and scope of local steelmaking. It also takes finished steel from steelmakers in the neighbouring regions. But the Central America/ Caribbean region is now attracting the attention of acquisitive outsiders, both large and small, and despite the modest size of this market, the consolidation that is now underway could have somewhat wider implications. Editor, insight@steelbb.com More information Costa Rica's Pujol-Martí gets out of steel - Monday, 26th November Cuba's Antillana to lift rolling capacity, add new products - Thursday, 8th November Nucor says moving DRI ops to Trinidad brings cost savings - Sunday, 21st October El Salvador strip producer lifts output - Tuesday, 21st August Steel Business Briefing

2 Table 2 Acesco's main assets Subsidiary Country Function Aceros Cortados Colombia service centre Galvatica Costa Rica service centre; Metalco Costa Rica HDG Pazko Panama service centre; Pimsa Colombia re-rolling & HDG Platt Metal Puerto Rico service centre; Rooftec Ecuador service centre; Tubotico Costa Rica tube and pipe Source: Acesco; SBB producer Ingasa), Colombia s Acesco has been moving quickly into downstream operations. Recently it acquired two companies in Costa Rica from local group Puj ol-martí. However, the Colombian group has no melting capacity and buys-in hot-rolled coil from Venezuela, Mexico and sometimes Brazil. Central America a sales option for Mexican mills Location of steelworks in Central America/Caribbean region Both new and established steelmakers in eastern Mexico view the growing consumption levels in the Central America/Caribbean region with keen interest as they are well placed to supply this market. Brazil s Gerdau is the newest entrant to Mexico, joining established large groups like ArcelorMittal, Ternium Hylsa and Ahmsa all of whom are seeking opportunities to strengthen their position in the long products market through acquisitions or expansion. This year Gerdau invested $100m ( 70m) to buy 49% of longs producer Aceros Corsa, and it has committed to building a new structural sections plant near Mexico City. Also in the company spent $259m to acquire rebar and profiles mill Sidertul, also in Mexico City. New acquisitions are expected in the Mexico s long products market in 2008, including rebar producer Aceros San Luis, in the eastern San Luis Potosi state. The company is up for sale, according to local sources, and this transaction is already attracting interests from the largest Mexican companies, including Ternium, Gerdau and ArcelorMittal, SBB understands. This consolidation movement creates space for a strengthening of steel business integration between Mexico and Central America, where ArcelorMittal, Gerdau and Ternium have some operations (see main article). Currently, Central American and Caribbean countries represent one export option for Mexican mills, but volumes are still very small compared to the size of shipments to the US (during first half Mexico exported just 8,000 tonnes of long products to Central America). The weak domestic market has depressed steel prices in Mexico (currently, rebars are at around $600/t) and led mills to raise exports levels including to Central America. In 2008 steel demand and prices are expected to show a recovery in Mexico with the start-up of some infrastructure projects, so the country may slow down its exports again. Eduardo Laguna Source: SBB Steel Business Briefing Issue December. Page 2

3 Table 3 Gerdau and ArcelorMittal's long products capacity (t/y) Mexico ArcelorMittal (Sicartsa) 2.7m 3m Gerdau (Sidertul; Aceros Corsa) Central America & Caribbean ArcelorMittal (Point Lisas; Laminadora Costarricense) 0.75m 1.53m 0.4m 0.4m Gerdau (Inca) 0.3m 0.72m Source: Gerdau and ArcelorMittal. Includes the companies' JVs entire capacities as they market the steel Although Acesco is focused on HDG, it already has a handful of operations abroad. Apart from Costa Rica, these are in Ecuador, Panama and Puerto Rico (see table 2), and it expects to double its capacity in Colombia. For the moment company officials deny any suggestion of a buyout by other steel groups. Currently Ternium and Acesco are the sole hot-dip galvanised sheet producers in Central America, via Ingasa (Guatemala) and Galvatica (Costa Rica) respectively. Ternium recently transferred an executive from Brazil to manage Ingasa's works. Better semis logistics Since ArcelorMittal's move into Costa Rica, where the group entered a partnership in long and drawn products operations in 2005, this steel giant has been working to optimise its regional output (as published by SBB, ArcMittal is likely to reach the full control over those operations in 2008). Initially Costarricense's rolling mill was supplied by Arcelor operations in Brazil, but after the formation of ArcelorMittal that was neither logical nor economic given the close proximity of Mittal Steel s billet caster in Trinidad and Tobago. Semis from Point Lisas can reach Costarricense in less than six days, while shipments from Brazil take three times that, a company source indicates. The Costa Rican mill also receives some billet from Mexico. AM s long products operations in southwestern Mexico, Trinidad and Costa Rica are now well placed to respond to any growth in the Central American and Caribbean market (see sidebar page 2). Other customers in Latin America are likely to see billet supply tighten More mills in the region are likely to be sold as consolidation advances, but AM s official gives no clues on possible new acquisitions. He says the only local mill that represents significant competition is Aceros de Guatemala. Steel Business Briefing Issue December. Page 3

4 Peek House, 20 Eastcheap London EC3M 1EB United Kingdom Phone: +44 (0) Fax: +44 (0) SBB Insight Editor Paul Millbank Steel Business Briefing Title Photos: Corus, ArcelorMittal. Mark these 2008 Dates: Mar 8-9 April April June North America SBB China Trade and Distribution Middle East Europe USA Shanghai, China Dubai, UEA London, UK SBB Latin America Wall Map The Latin America wall map produced by SBB is the first ever to show the steel mills of Latin America, listed by product type. The Map includes: Location of 159 steel mills 63 Iron Producers & 49 Iron Ore mines Pig iron, DRI / HBI & crude steel production statistics Color coded crude steel output, by country Major ports & international shipping distances Optional extras include an A4 Atlas and PDF data file. 20% discount for Subscribers. Order now! I find the service excellent for keeping abreast of the latest situation within the industry. It is an excellent and very informative service Mark Jeffrey, SSAB What are reversing, tandem & continuous mills? Steel is rolled to change its dimensions by passing it between a pair of rolls in a rolling mill (a mill stand). But as it is rare to achieve the desired final thickness or cross-section in one step (single pass); the steel will need to go through the same mill several times (with a reduced roll gap, and/or changed roll profile each time), or transferred to other mill stands for further reduction/shaping. When steel is rolled back-and-forth through the same mill, this is a reversing mill. When it moves directly in a continuous process to other mill stands, this is a tandem or continuous mill. These can achieve far higher throughputs than a reversing mill. Tandem mills are associated with flat products and typically have 4 or 6 stands. Continuous mill is a long products term, and can be followed by an indication of the number of stands and product (eg. 8-stand bar mill, 10-stand rod mill etc). Gerdau counter-attacks Local analysts foresaw that Brazil's Gerdau group would not be slow to react after ArcelorMittal's moves, and this year it has acquired stakes in Inca in the Dominican Republic and mini-mill Aceros Corsa in Mexico. Also, the Brazilian steelmaker has bought Mexico's Sidertul, a 350,000 t/y bar mill which is being expanded to 500,000 t/y. Table 4 Possible takeover targets? Country Cuba El Salvador Guatemala Honduras Nicaragua Mexico Source: SBB Companies Antillana de Acero (longs); Acinox Las Tunas (stainless) Sidertul operates an EAF and will be able to produce around 430,000 t/y of bar and rebar from 2008 onwards. Also, Gerdau intends to build a 700,000 t/y sections mill in partnership with Aceros Corsa, and has a similar plan with Inca to build a 420,000 t/y bar and light sections mill. If Gerdau completes all of its plans it will have more than 2.2m t/y of rolled long products capacity in Mexico and Corinca (longs); Invercalma (re-rolled longs); Proaces (re-rolled flats) Aceros de Guatemala (longs); Tubac (welded pipe) Aceros Alfa (re-rolled longs); Apsa (re-rolled longs) Industrial Metalurgica (re-rolled longs) Aceros San Luis (longs); Siyusa (longs); Talleres y Aceros (longs) the Central American countries within three years (see table 3). Billet market tightens These recent moves in Central America could affect Latin America's billet market, leading to tighter supplies and higher prices across the whole region. For example, as Gerdau acquires and expands rolling operations in Central America, most of the billet currently produced in Brazil which is surplus to Gerdau's own needs (especially at Cosigua and Açominas) would be consumed by t h e s e r o l l i n g m i l l s. A l s o, ArcelorMittal s actions in or adjoining the Central America/Caribbean region such as plans to double bar rolling capacity in Mexico will have an impact on billet supply. Ecuador's rolling mills Adelca and Andec, for instance, could face

5 some difficulties, and both are currently changing and widening their list of semis suppliers, including adding Chinese mills. Andec is also expanding its steelmaking capacity in order to replace bought-in billet. Growing competition could force Central America s surviving independent producers to sell out Latin American billet traders seem to be concerned, although there have been reports from Brazil's Minas Gerais state that international trading company Stemcor could have plans to build a small billet caster in partnership with a regional pig iron producer. Rumours also say US steelmaker Nucor could invest in billet production in Brazil. Can others survive? Growing competition from major companies could force Central America s surviving independent producers to sell out (see table 4 for r e m a i n i n g i n d e p e n d e n t s ). Companies like Corinca (El Salvador), Aceros San Luis (Mexico) and Aceros Alfa (Honduras), will have to face direct competition from these giants and this could change their commercial viability. SBB learns that some companies are already planning to sell operations. Others are likely to pursue joint ventures. No matter what, they will need to make some changes to compete in the region s new steel landscape. Report prepared by Carlos Matos SBB São Paulo Steel Business Briefing Issue December. Page 5