Usiminas CEO sees no Brazil mergers

By Guillermo Parra-Bernal and Alberto Alerigi Jr.

SAO PAULO (Reuters) – A wave of mergers in Brazil’s steel industry is unlikely, as mills look for ways other than combinations to grow their business and unlock asset value, the chief executive of Usiminas, Brazil’s biggest maker of steel products for automakers, said on Tuesday.

Usiminas, which has been linked with CSN (CSNA3.SA: Quote, Profile, Research) and Gerdau (GGBR4.SA: Quote, Profile, Research) in takeover speculation, will bet on developing some of its existing assets instead of buying or selling businesses, CEO Wilson Brumer told the Reuters Latin American Investment Summit.

“I didn’t come to the helm of Usiminas to prepare it for a sale. Usiminas has to stay as leader in Latin America’s flat steel sector,” Brumer said. “The window of opportunities for tie-ups is long gone, there’s not much left.”

Brumer’s remarks indicate that a sale to a rival is unlikely following the renewal of a controlling shareholders’ accord for another 20 years. The former Vale (VALE.N: Quote, Profile, Research) executive bets on restoring Usiminas’ ability to compete, make more value-added products and upgrade capacity to recoup part of the market share lost in recent years.

Earlier in the day, CSN Chief Financial Officer Paulo Penido Marques said that CSN’s growing stake in Usiminas remains a “strategic investment.” CSN’s presence in Usiminas could help the latter reap the benefits of greater scale, Penido told analysts in a conference call.

Market conditions will remain challenging during the first quarter, although they could improve anytime during the second half.

Revenue, operational profit and sales volumes plummeted in the fourth quarter as the local market, where Usiminas sells 80 percent of its output, faced a flurry of cheap steel imports, high inventory and declining prices.

“We were probably the most affected with the events of 2010,” Brumer said.

PRICE HIKES

Analysts say the challenge facing Brumer currently is how to bolster Usiminas’ iron ore and specialty products unit while cutting costs to bolster eroding steelmaking margins.

Brumer said Usiminas is undertaking the necessary measures to remain independent and sell more specialized products now that Brazil is going through a boom in oil and exploration and infrastructure spending.

He said the company is currently negotiating a hike in prices for some products sold locally of between 6 percent and 10 percent. He foresees a drop of about 50 percent in imports of some steel products into Brazil this year.

Usiminas’ next investment cycle will focus more on cost efficiency and better use of existing assets, rather than boosting capacity to produce raw steel, he noted.

Such investments could help the company save 350 million reais ($211 million) annually through energy self-sufficiency and mill upgrading.

“We have to invest more to save more costs, that is a rule that is painful but there’s no other way around,” he said.

Profit margins at the steel segment should rise to about 20 percent by the end of 2015, from about 4 percent at the end of 2010, he said.

Earnings before interest, tax, depreciation and amortization, a measure of operational profitability known as EBITDA, could more than double to 8 billion reais in the same period, from 2.7 billion reais last year, he said.

(Editing by Phil Berlowitz)

Usiminas CEO sees no Brazil mergers