Gerdau Bets On New Brazil Line, Exports, Data To Ease Steel Slump

16 September 2016

Brazil’s Gerdau SA , the No. 1 long-steel producer in the Americas, is counting on non-traditional flat-steel exports and a data venture with General Electric Co to help weather a world-steel slump and sharp domestic downturn.

Gerdau said half of the output from its Ouro Branco steel complex is now exported. Growing production from the higher-value hot-rolled coil and steel plate lines at the plant are winning orders from new British and German clients, said Rodrigo Soares, Gerdau’s head of Brazilian industrial steel, during a media visit to the plant on Wednesday.

“Brazilian demand is bad, so we must export.” he said. “Being able to sell so much output abroad shows we can compete internationally on price and quality.”

Gerdau planned Ouro Branco’s $1.5 billion flat-steel expansion during Brazil’s boom. Brazil now faces its worst recession in decades. Worse, world supply outstrips demand, major construction clients are mired in the country’s biggest-ever corruption scandal and the slowdown has crimped the Porto Alegre, Brazil-based steelmaker’s ability to pay debt.

Historically, Brazil’s flat-steel producers export about a third of output during domestic downturns. Flat-steel output and high exports are a change for Gerdau, traditionally known for long steel, used mainly for concrete reinforcing bar in construction, structural shaped steel and other civil construction purposes.

Ouro Branco’s hot-rolled coil line, which opened in 2013, is operating near its 800,000 tonne-a-year capacity, Soares said. The steel-plate line, which opened in July, will process about 100,000 tonnes this year, about a tenth of its 1.1 million-tonne-a-year capacity. Both use slabs from the plant’s 4.5 million-tonne-a-year blast furnace.

While Brazil’s weaker real makes Ouro Branco’s products more competitive abroad in dollars, it has also attracted anti-dumping actions in the United States. As a result, U.S. exports are small, Soares said.

But these gains will only limit falling sales and profit. Brazil’s market for steel plate, used to build ships, wind-turbine towers, oil tanks and pipes and other heavy equipment, will fall 20 percent or more to 600,000 to 800,000 tonnes this year, Soares said.

After closing one of two lines last year because of the downturn, rival Usinas Siderurgicas de Minas Gerais SA , the only other domestic producer of steel plate, has a capacity of 500,000 tonnes a year.
Soares says the Ouro Branco mill, despite being far from Brazil’s coast and easy access to cheap water transport, is still competitive in export markets because it is only kilometers away from high-quality iron ore mines, reducing a key raw material cost for site’s blast furnace.

Long steel is mostly made with scrap in small electric-arc furnaces close to clients, cutting transportation costs in a competitive civil-construction market.

Flat steel is mostly made from iron ore in coal-fired blast furnaces at large capital-intensive mills, often far from clients. High quality requirements often make price less important.

Gerdau has hired GE to fit its Brazilian and U.S. mills with thousands of sensors and data-mining software to anticipate expensive maintenance shutdowns, the first such system in the world steel industry, Soares and GE said.

The Brazilian project will cost 5 million reais ($1.5 million) and save 15 million reais a year, Soares added.


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