A Company and Industry Analysis - Latin America - Metal

Industry Report - Metal Works - July 2009
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Latin America
Metal Works Sectors

A Company and Industry Analysis
CONTENTS
Current Environment Sector Overview Sector Performance Leading Companies Mergers, Acquisitions and Alliances Industry Prole Industry Size and Value Industry Focus
- Aluminum - Steel - Copper
July 2009
Current Environment Key Points The economic slowdown hit the Latin American metal works industry hard over the last six months, reaching its most critical point during the rst quarter of 2009. In the rst quarter of 2009, Latin American metal works companies saw their earnings crumble, as a result of a weak demand for steel products. The majority of metals companies faced problems renancing as the rst half of 2009 progressed, rocked by unprecedented economic and market upheaval. Merger and acquisition activity in most industries, particularly the metals industry, dropped sharply in the rst half of 2009, as world demand fell and prices plummeted.
Industry Prole Key Points Prior to the global market meltdown, the regions metal industry enjoyed a sustained period of strong demand growth for almost a decade. The regions crude steel output dropped by 35.8% year-on-year to 18.4 million tons in the rst ve months of 2009. The worlds largest copper producer and exporter, Chile, saw year-on-year copper output tumble by 9.8% in February to 383,057 tons, the eight successive monthly drop. Despite the deepening economic crisis, the metals industry is attracting more investment interest as a number of key players see the recession as an opportunity.
Sector Investment Market Trends and Outlook Economic Slump Dents Investment Steelmakers Cut Costs to Stay Aoat A Grim Outlook for the Regions Steel Market Market Outlook Country Proles Brazil Chile Mexico Peru Venezuela Currency Conversion Table The Scope of this Report Key References Comparative Data Reports Coverage
Market Trends and Outlook Key Points A reduction in steel demand, local and foreign credit restrictions and declining condence levels among consumers and investors continues to slow Latin American steel industrial activity. Tightness in the regions steel industry and weak demand related to the downturn is forcing steelmakers to cut costs. Financial and environmental challenges is forcing domestic and international steelmakers to cut their workforces, reduce production and even close excessive capacity. Demand for steel and steel products is continuing to fall amid the global manufacturing slump, with steel production in the rst quarter of 2009 down 40% year-on-year to 10.1 million tons. The outlook for the regions metal market for this year points to slowing or subdued demand and a possible slow recovery later in the year.
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Current Environment
Sector Overview After the US nancial crisis picked up pace in the second half of 2008, most industries around the globe experienced a downturn. The slowdown affected the Latin American metal works industry, which reached its most critical point in the rst quarter of 2009. The bearish industry performance was the consequence of the abrupt drop in economic activity, both globally and locally. In some cases, metal prices, which had seen an unprecedented rapid rise in 2007 and the rst half of 2008, went into freefall. By the end of 2008, hot band prices around the world had dropped from over US$1,000 per ton to just over US$500 per ton, according to the London Metal Exchange. Prices for copper and aluminum faced the most dramatic decline, shedding around 60% or more of their July and August 2008 highs. At these lower price levels, global aluminum production and a large number of metal companies in Latin America were operating at a loss. By the end of the rst half of 2009, steel prices had not experienced any real growth. In the rst quarter of the year, global steel production contracted sharply, adjusting to the new level of demand. Crude steel production sank 50.4% to 2.5 million tons in the rst quarter, compared with 5.1 million tons a year earlier. Production of nished steel tumbled 44.1% to 2.45 million tons, from 4.38 million tons in the rst quarter of 2008. In the rst half of 2009, the decline in the Latin American metal industry went from the steep to the deep. A sharp rise in commodity prices in the rst half of last year gave way to a deep slump. As the full scale of the global depression and the credit crisis intensied, the momentum for deal activity slowed, affecting metal-consuming industries, such as the automotive and construction sectors. The downturn and the tightening of credit affected merger and acquisition (M&A) activity dramatically. As world demand fell and prices plummeted, Latin American metal industry deal making fell away sharply in the rst half of 2009. With few M&A deals in the pipeline, most Latin American companies looked elsewhere to nd opportunities for growth. Latin American metal works companies saw their earnings crumble in the rst quarter, a direct reection of the weak demand for steel products, which is not likely to begin rising strongly before the end of this year. Sector Performance The global metals industry was rocked by unprecedented economic and market upheaval in the fourth quarter of 2008 and, as the industry moved through the rst quarter of 2009, conditions remained just as challenging. The majority of Latin American metal companies faced problems in renancing in the second half of 2008 and rst half of 2009. However, over the six months from January 1 to June 22, Brazilian steelmaker Companhia Siderurgica Nacional (BVSPA: CSNA3) outperformed its competitors, with its share price swelling by 49.2% in the rst half of 2009. Another leading Brazilian steelmaker Gerdau SA (BVSPA: GGBR4) saw its share price increase by 33.1%, while the share price of Grupo Simec SAB de CV (AMEX: SIM), Mexicos largest steelmaker, rose 22.6% in the same period. Gains in commodity materials prices in May pushed Brazilian and Mexican markets higher, as continued weakness in the US dollar made commodities and local currencies more attractive.
Table 1: Stock Performances of Leading Latin American Metal Works Companies
Company Companhia Siderurgica Nacional Gerdau SA Grupo Simec SAB de CV Empresa Siderurgica Del Peru SAA Madeco SA
% Increase in Share Prices (January 1 June 22, 2009) 49.2% 33.1% 22.6% 19% 7.4%
Source: Mergent analysis, 2009
At the beginning of June, stocks of most Latin American metal companies rebounded, as oil prices hit year highs.
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Current Environment
The regions stocks surged, with oil, copper, soy and other commodity prices rebounding, as investors bet that a global economic recovery would boost demand for Latin Americas major exports, such as metals. The share price of Peruvian steelmaker Empresa Siderurgica Del Peru SAA (BVL: SIDERC1) and Chiles Madeco SA (BSAN: MADECO) rose 19% and 7.4%, respectively, over the six-month period, as investors saw steel as an attractive alternative to other investments. Leading Companies Gerdau SA (BVSPA: GOAU4) Gerdau SA, headquartered in Porto Alegre, Brazil, produces and sells steel and related long rolled products, drawn products and long specialty products. The companys net income dropped to R$35 million (US$17.36 million) in the rst quarter of 2009, from R$1.09 billion (US$540.77 million) in the equivalent quarter of 2008, due to lower operating income, which plummeted more than 80% to R$189.55 million (US$94.04 million), from R$1.50 billion (US$744.18 million) in the rst quarter of 2008. The drop in international steel prices and lower sales volume caused revenue to slip 22% to R$6.97 billion (US$3.46 billion), compared with R$8.94 billion (US$4.43 billion) in the same period of the previous year. The company plans to invest US$3.6 billion in xed assets over the next ve years, including US$550 in 2009. Madeco SA (BSAN: MADECO) Madeco SA, headquartered in Santiago, Chile, manufactures nished and semi-nished non-ferrous products based on copper, aluminum, and related alloys. In the rst quarter of 2009, the companys net income shrank 62.2% to US$6.36 million, compared with US$16.83 million in the corresponding quarter of 2008, due to the sale of its cable operations at the end of September 2008. Revenue decreased by 28.9% to US$84.20 million, compared with US$118.36 million in the same period of 2008. The drop was due to lower sales volumes and reduced prices of the companys raw materials, mainly copper and aluminum. Its quarterly operating income grew 22.6% to US$5.28 million, compared with US$4.30 million in the rst quarter of 2008. The increase was due to higher gains from it brass mills and packaging units, offset by lower gains from the proles unit. Operating income for the brass mills and packaging units increased by US$2.04 million and US$1.77 million, respectively, from the rst quarter of 2008. However, operating income from the proles unit saw a loss of US$1 million, compared with a gain of US$1.51 million in the same period of 2008, due to reduced gross margins and higher selling, general and administrative expenses. Grupo Simec SAB de CV Grupo Simec SAB de CV, based in Guadalajara, Mexico, produces, processes, and distributes special bar quality steel products. The companys net prot dropped 26% to MEX$440 million (US$32.49 million) in the rst quarter of 2009, from MEX$592 million (US$43.71 million) in the corresponding quarter of 2008. Net sales dipped 30% to MEX$5.08 million (US$375,107.20), compared with MEX$7.29 million (US$538,293.60) in the rst quarter of the previous year, driven by lower shipments. Shipments of nished steel products sank 32% to 506,000 tons, compared with 745,000 tons in the same period of 2008. Its operating prot fell 56% to MEX$385 million (US$28.43 million), compared with MEX$878 million (US$64.83 million) in the rst quarter of 2008, due to a 32% reduction in shipments. Total sales outside Mexico dropped 59% to MEX$2.22 billion (US$163.92 million), compared with MEX$5.42 billion (US$400.21 million) in the equivalent quarter of 2008. Conversely, total Mexican sales surged 53% from MEX$1.87 billion (US$138.08 million) in the rst quarter of 2008 to MEX$2.86 billion (US$211.18 million) in the corresponding quarter of 2009. Mergers, Acquisitions and Alliances The pace of consolidation in the global metals industry slowed signicantly in most regions. The number of M&As in the Latin American metal industry was signicantly less, and deals were smaller, in the rst half of 2009. Due of the economic crisis, major metal players postponed acquisitions. However, they also closely monitored industry developments, waiting to capitalize on major drops in the market values of companies. Some may even take the opportunity to position their business for growth by acquiring weaker competitors at lower valuations. In 2008, the level of M&A activity in most industries, particularly the Latin American metal industry, dropped sharply, as world demand fell and prices plummeted. The collapse of Lehman Brothers in the fall of 2008 was the catalyst for the global credit crisis, leading to a deep
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Current Environment
recession, and resulting in a steep fall in commodity prices and stalling deals. Even before this, metal deal sizes had retreated from the high values seen in 2006 and 2007. The severity of the recession led most Latin American metal companies to switch their focus away from M&A deals and make cash conservation their main priority. In recent months, small, privately owned steel distributors in Brazil merged to survive the economic turmoil. The Sao Paulo steel distributor Grupo Goncalves Dias (GGD) is the product of a three-way merger in December last year between specialty steel vendors RCC, AcoMetal and Domave. Merging was the only way the companies could compete against large producers such as ArcelorMittal (NYSE: MT) and Usiminas (BVSPA: USIM5), which do their own distribution. GGD is keen on making acquisitions in Brazil to expand its market further. In April, Mexican steelmaker Grupo Villacero acquired 29.2% of the outstanding shares of local steel services and distribution rm Grupo Collado (AMEX: COLLADO), for an undisclosed amount. The deal strengthened Grupo Villaceros market share in Mexico, and is expected to help boost the companys steel production for the local market and for distribution to the southern US.
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Industry Profile
Industry Size and Value Latin Americas metals industry enjoyed a sustained period of strong demand growth for almost a decade prior to the global market meltdown. However, the ensuing global downturn brought the collapse of commodity prices and metal prices have remained weak since September last year. The World Steel Association estimates global steel production in the rst quarter of 2009 totaled 264 million tons, a decline of 22.8% from the rst quarter of 2008. The Latin American Iron and Steel Institute (ILAFA) estimates Latin Americas crude steel output declined by 35.8% year-on-year to 18.4 million tons in the rst ve months of 2009. Brazil registered output of 8.46 million tons in the rst ve months of 2009, a drop of 41.7%, from 14.51 million tons in the same period of 2008. Mexicos steel production was down 32.4% to 5.36 million tons, while Chiles output shrank 44.6% to 404,500 tons. However, steel production in Venezuela climbed 1.1% to
Table 2: Steel Producers in Latin America
1.69 million tons, compared with 1.67 million tons in the rst ve months of 2008. Brazil is the worlds ninth largest steel producer, with an annual output of more than 30 million tons. The countrys access to high-quality iron ore and inexpensive labor makes it one of the worlds lowest-cost producers of steel, according to the Brazilian Steel Institute (IBS). In April, Brazils steel production totaled 1.7 million tons, a drop of 40.4% month on month, inuenced by the global economic slowdown causing weaker demand. Chile, the worlds largest copper producer and exporter, saw year-on-year copper output tumble by 9.8% in February to 383,057 tons, the eighth successive monthly drop, according to Chiles National Statistics Institute (INE). The economic crisis is not the only issue facing the copper industry, as falling ore grades at ageing mines
Country Brazil Mexico Argentina Chile Peru Venezuela
Production (000 tons) 2008 (Jan-May) 14,510 9,305 2,689 730.14 469.64 1,672 2009 (Jan-May) 8,460 5,360 1,530 404 263 1,690
% Change (41.7%) (32.4%) (43.1%) (44.6%) (44%) 1.1%

Source: Latin American Iron and Steel Institute
Table 3: Aluminum Production by Region (000 tons)
Period 2007 2008 Jan-May 2008 Jan-May 2009
Africa 1,815 1,715 705 681
North America 5,642 5,783 2,450 2,055
Latin America 2,558 2,660 1,096 1,052
Asia 16,305 17,028 6,977 6,313
West Europe 4,305 4,618 1,942 1,633
East/Central Europe 4,460 4,658 1,931 1,742
Oceania 2,315 2,297 963 909
Total 37,400 38,759 16,064 14,385
Source: International Aluminum Institute
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Current Environment
of state-run giant Codelco, which produces more than a quarter of Chiles copper, dent output. The output of copper in concentrates dropped in February by 23.9% from a year earlier to 153,900 tons. Industry Focus Aluminum Global aluminum production climbed 5.1% to a fourmonth high in May, as the worlds largest producer, China, produced more metal, according to the International Aluminum Institute (IAI). World aluminum output was 2.96 million tons in May, the highest since January, compared with 2.81 million tons in April. However, in Latin America, aluminum production slipped 4% to 1.05 million tons from January to May this year, compared with 1.10 million tons in the same period of 2008, as global demand faltered. Steel The progress of the US nancial crisis into a global economic crisis in late 2008 brought a global decline of steel demand in late 2008. The metal industry responded
Table 4: Latin American Steel Output
quickly by cutting production to ensure that supply matches demand. In 2008, the global steel industry produced 1.33 billion tons of steel, compared with 1.35 billion tons in 2007, according to the World Steel Association. Steel is essential to economic growth as it provides energy delivery, infrastructure, transport, housing and construction, and key consumer goods. ILAFA data shows Latin Americas steel production totaled 67.2 million tons in 2008, remaining at since 2007. The regions steel exports dropped by more than 15% to about 8.6 million tons in 2008, from 10.3 million tons in 2007, due to higher demand in the region. China is the worlds leading steel producer and an important inuence on the global steel market. The World Steel Association estimates China produced 500.5 million tons of steel in 2008, a slight increase of 1.1%, compared with 494.9 million tons in 2007. The countrys share of world steel production continued to grow in 2008, accounting for 38% of world total crude steel. Concurrently, Brazil, the largest steel producer in Latin America, saw production slip by 0.3% to 33.7 million tons in 2008, from 33.8 million tons the previous year.
Country Venezuela Brazil Mexico Argentina Chile Colombia Peru
2007 (million tons) 5.0 33.8 17.6 5.4 1.7 1.2 0.9
2008 (million tons) 4.2 34.4 17.8 5.7 1.5 1.1 1.1
% Change (16%) 1.8% 1.1% 5.6% (11.8) (8.3) 22.2%

Source: Latin American Iron and Steel Institute
Table 5: Top Steel Producers in Latin America
Country Brazil Mexico Argentina Venezuela World
World Ranking 9 15 28 36
2008 (million tons) 33.7 17.2 5.5 4.2 1,326.5
2007 (million tons) 33.8 17.6 5.4 5.0 1,351.3

Source: World Steel Association
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Industry Profile
Copper The World Bureau of Metal Statistics estimates there was 133,000 tons of excess copper in the global market from January to April 2009, compared with a shortage of 161,000 tons a year earlier. Like those in other parts of the world, the Latin American copper industry experienced the effects of the economic downturn, and this was reected in the regions demand for copper, especially in Chile, the worlds largest producer and exporter of copper. Chile saw its copper exports fall by 4.7% to 5.4 million tons in 2008, compared with 5.67 million tons in the previous year, due to a fall in production in the second half of the year. The countrys copper production also slipped, by 4.1% to 5.33 million tons in 2008, from a year earlier, as demand lagged due to the slowdown in the global economy, according to the state copper commission Cochilco. The gures show the copper industry was struggling to stay aoat amid the economic downturn, since Chile generates as much as 35% of the worlds copper. However, the region will continue its role as the worlds dominant supplier of copper, and as the most signicant location for new projects. Chiles state-run Codelco, the worlds largest copper producer, plans to invest US$2 billion in its mines this year to reverse four years of declining production. Moreover, the Chilean Government announced at the beginning of the year that it would invest US$1 billion in Codelco as part of an economic stimulus package. The Governments move will provide a large number of exploitation opportunities that, in turn, will generate additional employment in the country. It is hoped that the move will reverse the decline in the countrys exports, which dropped 29% to US$1.89 billion in May, compared with US$2.67 billion a year earlier, severely affecting the metal industry, according to the Chilean central bank. Sector Investment Despite the deepening economic crisis and deteriorating global market, the Latin American metal industry is attracting more investment interest. The board of Brazilian steelmaker Gerdau has approved US$140 million in investments to expand Peruvian subsidiary Siderperu. Last year, the Brazilian steelmaker aimed to increase Siderperus steel output to three million tons a year by 2013. The company is in the midst of an expansion to 700,000 tons per year from 400,000 per year, and aims to complete the program in 2010. A number of key metal players see the recession as an opportunity, and are taking advantage of the crisis to nd ways to expand in areas outside Brazil. Another Brazilian steelmaker, Usiminas, signed a memorandum of understanding with the Minas Gerais State Government in April, committing to invest R$19.1 billion (US$9.47 billion) in the state over the next ve years. The companys main undertaking is a ve-million-tons-ayear slab plant in Santana do Paraiso City, near Ipatinga, where the company has its headquarters. Regardless of the slumping economy, the company plans to expand production at its Ipatinga plant. With the expansion, the plant will be producing an additional 500,000 tons a year of heavy plate, 150,000 tons of hot rolled coil, 220,000 tons of cold rolled coil and 550,000 tons of galvanized coil within ve years. Argentine aluminum producer Aluar Aluminio Argentino (BUE: ALUA) announced that investment in expansion would continue despite the global crisis. In February 2009, the company asked shareholders for permission to issue bonds worth US$300 million. The company will use some of the proceeds to move ahead with expansion plans at its plant in Chubut province, and expects to keep employees on its payroll. It will complete the US$500 million second expansion stage in Chubut that will add 96 electrolytic cells. Aluar has already invested US$315 million to add 72 cells. The expansion will increase aluminum production for the domestic market to 105,000 tons a year. After the next expansion phase, the companys capacity will total 515,000 tons a year.
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Market Trends & Outlook

Economic Slump Dents Investment The impact of the global nancial crisis on the Latin American economy is becoming increasingly apparent, with a reduction in demand, local and foreign credit restrictions, and the declining condence levels of consumers and investors. All these factors have slowed industrial activity, in particular in the production chain, where Latin American steel has a major share. The International Iron and Steel Institute (IISI) estimates global steel production was 262.8 million tons in the rst quarter of 2009, down 23% from the same period of 2008. The Latin American metal industry has felt the effects of the nancial crisis intensively since the fourth quarter of 2008, particularly among its steelmakers. They have continued to show restraint in industrial manufacturing investments, hampered by a lack of available credit and a slowing inux of capital. Chilean steel and iron ore producer CAP SA (BSAN: CAP) announced in May it had postponed plans to invest around US$2.2 billion to double its steel output, on concerns that a slowing economy would dampen demand. As the global credit crunch and economic slowdown reduces demand, global investment in the industry is likely to fall, possibly by 55% to US$50 billion in 2009. In Brazil, Companhia Vale do Rio Doce (BVSPA: VALE), the worlds biggest iron ore producer, has already cut its US$14.2 billion 2009 investment plan by 37%, as costs decline and the dollar strengthens. Apart from the weak economy, the cut in investment also reects the price of the companys cost-denominated currencies, a review of equipment and implementation costs, delays in granting of environmental licenses, and simplications and changes in some projects. Steelmakers Cut Costs to Stay Aoat Tightness in the Latin American steel industry and weak domestic and international demand related to the global economic slowdown is forcing steelmakers to cut costs. After the weakness of the rst half of 2009, measures by steelmakers to cut their workforces, reduce production and even close excessive capacity, is also ongoing. Leading Brazilian steelmaker Usiminas (BVSPA: USIM3) is considering postponing part of the rst phase of construction for its new ve million tons a year Santana do Paraiso steel plant, reducing capacity to 2.5 million tons a year. In April, the company said it was investing US$9 billion in Minas Gerais state over the next ve years, including US$2.4 billion in 2009. As there is an over supply of steel and iron ore on global markets, the company may scale back its ve-year expansion plans. At the end of May, the Brazilian steelmaker dismissed 810 employees, or 6% of its workforce, shutting three of its ve blast furnaces because of the slump in demand. In early May, the company, which operated at 50% capacity during the rst quarter, announced a voluntary layoff plan. However, only 516 workers from the companys Ipatinga plant in Minas Gerais state and the Cubatao plant in Sao Paulo state chose to take part in the voluntary program, which provides compensation approved by local unions. The new job cuts will raise total layoffs since December last year to more than 2,000. Among the companys main shareholders, Nippon Steel (TSE: 5401) cut 700 jobs from December to the end of February. The aim of the layoffs was to reduce personnel costs to an all-time low of 10% of total costs. The more than 300 cost-cutting programs in place at the plants have an annual savings potential of R$1.2 billion (US$595.34 million), as the Latin American steel industry tries to recover, albeit slowly. Financial and environmental challenges are also forcing foreign steel companies to reduce their expenses. Luxembourg-based steel giant ArcelorMittal (NYSE: MT) conrmed in July it had postponed the construction of a US$600 million steel mill in Mexico. The company had intended the steel plant to serve mainly the construction and automotive sectors, using electrical steelmaking equipment with a capacity of one million tons of billets year, and a 500,000-tons-a-year rolling mill. In early June, US company Doe Run completely shut down its La Oroya smelter in Peru. The company said it was unable to continue operating because of the present nancial and environmental obstacles. The company was on the brink of halting La Oroya in April, due to the cancellation of the companys credit, which it needed to continue purchasing mineral concentrates from mines in central Peru for processing at La Oroya.
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Market Trends & Outlook

A Grim Outlook for the Regions Steel Market The tumultuous conditions of 2008 are continuing into 2009, as a challenging global macroeconomic environment and tightened credit markets contribute to plummeting demand for industrial manufacturing assets. The World Steel Association estimates that steel demand worldwide will fall to 1.019 billion tons in 2009, down 14.9% from 2008. The US recession and slowdowns in other economies have drastically reduced metal demand in Latin America. Manufacturing and construction sectors, the major consumers of metals in the region, have suffered particularly severe declines. In Latin America, demand for steel and steel products has fallen sharply in tandem with the global manufacturing slump. After years of growth, Latin Americas steel production in the rst quarter sank 40% year-on-year to 10.1 million tons, according to the ILAFA. In light of the weak and uncertain economy, the IISI expects Latin American steel production to slip by 8.3% to 45.5 million tons in 2009, compared with 50.6 million tons in 2008. The regions largest economy, Brazil, went into recession in the rst quarter, as the crisis slashed exports and local demand for steel. In the rst four months of 2009, Brazils steel production dropped 41.7% from the same period of the previous year to 6.73 million tons, according to the Brazilian Steel Institute. Domestic sales plummeted 42.5% to 4.32 million tons, compared with 7.51 million tons over the same period of 2008. The negative growth of the metals market in the past months indicates that the decline in Latin American metal activity will most likely continue. In the nal quarter of 2008, metal production dropped markedly due to the global recession. Most Latin American metal companies have announced signicant production cuts in an effort to align supply with reduced demand. The situation did not change in the rst half of 2009, and is unlikely to do so until 2010, with most Latin American countries forecasting a fall in GDP this year. Market Outlook The intensication of the global nancial crisis was the trigger for a rapid deterioration in the world metal market outlook. Over the next few years, Mergent expects a mixed and volatile market for the Latin American metal industry. The deepening downturn has already resulted in poor nancial earnings in the rst half of 2009, with companies losing much of their market value due to the worldwide recession. Metal companies are expected to continue to report lackluster nancial performances this year, with the overall outlook pointing to slowing or subdued metals demand and a possible slow recovery later in the year. After the urry of big deals in the past two years, M&A activity in the Latin American metal sector is likely to be relatively quiet in 2009. In the face of continuing economic uncertainty, credit from banks and sub-debt sources will remain tight in the second half of this year. If the current economic situation worsens in the coming months, the metal industry will more than likely consolidate to weather the present nancial turmoil through corporate synergies. The regions leading steel players may seek to leverage their relative nancial strengths to further their competitive advantages. It is likely that steel will continue to contribute a large proportion of deal value to the overall M&A total, given the relatively lower level of consolidation compared with the aluminum industry.
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Country Profile
Brazil
Sector Overview Bulk low price imported steel products and cheap foreign imports have affected the Brazilian steel industry since the Government removed the 16% import tariff in 2005. The Brazilian Steel Institute has urged the Government to reinstate import tariffs on steel products to reduce the entry of lower-priced products. Major Brazilian steelmakers Metalurgica Gerdau SA (BVSPA: GOAU3) and Companhia Siderurgica Nacional (BVSPA: CSNA3) have also called for tariffs against cheap steel imports. It is important for Brazil to protect the metal sector from imports to safeguard the domestic market and to guarantee employment. The Government is contemplating reintroducing 12% import tariffs on hot and cold rolled coil products in an effort to protect the local steel industry. However, the volumes of Brazilian steel imports should drop substantially because of the high value of the US dollar against the Brazilian real and because of tight credit. This will benet Brazilian distributors, as it will reduce the amount of steel on the market. Continuing nancial market uncertainty, the economic slowdown and a collapse in world metal demand have created a challenging environment for the Brazilian metal industry. According to the IBS, Brazil manufactured ve million tons of crude steel and 3.5 million tons of rolled steel in the rst quarter of 2009, drops of 42.1% and 46.6%, respectively on the rst three months of the previous year. Sector Performance Industry performance this year will depend mostly on the behavior of the local economy. Steel production in Brazil continued to fall steadily amid the current international nancial crisis that has shaken the steel market. The IBS estimates production of crude steel plummeted 42% in the rst quarter of 2009, compared with the equivalent period of 2008, to ve million tons. Production continued to tumble in March, sinking 41.5% from the same month of 2008, in line with the decline in international demand.
Table 6: Brazilian Steel Output and Sales
000 tons 3000 2500 2000 1500 1000 500 0

Jan Production Domestic Sales International Sales 2792 1840 551 Feb 2494 1814 925 Mar 2771 1922 879 Apr 2783 1930 720 May 2770 2004 716 Jun 2715 1977 821 Jul 2909 2074 859 Aug 2366 2016 714 Sep 2685 1964 781 Oct 2790 1904 520 Nov 2021 1413 400 Dec 1800 934 364 Jan/09 1337 950 371
Source: Brazilian Steel Institute
11
Country Profile - Brazil

From October 2008, the three main consuming sectors of the Brazilian steel industry automotive, civil construction and capital goods have sharply reduced their orders due to falling consumption and the unpredictable outlook for 2009. In December 2008, domestic sales of steel products were down by 33% to 52% from the average levels observed by IBS in January/October of the same year. The results for January last year were practically the same as those of December, and reect the strong slowdown in the activities of large steel-consuming sectors. Leading Companies Companhia Vale do Rio Doce (BVSPA: VALE) Market Outlook Companhia Vale do Rio Doce (Vale), headquartered in Rio de Janeiro, Brazil, operates as a diversied metals and mining company worldwide. Its iron ore production dropped 37% to 46.9 million metric tons in the rst quarter of 2009, compared with 74.5 million tons in the same period of 2008. Production dropped as the company shut down mines because of lower demand. Global demand for iron ore is unlikely to pick up until the end of the third quarter or beginning of the fourth quarter of 2009. However, the company has adapted its production to current demand levels and it is unlikely to make further output cuts in the next few months. During the quarter, the production of iron pellets registered an even worse decrease, down 73.4% from the same period last year to 2.885 million metric tons. To reduce costs and adjust production, the company shut down its higher cost, and lower quality mines, while maintaining operational exibility at other mines. Vale kept only three of its nine pellet production units in operation in the rst quarter of 2009. Two other units restarted operation in March following stronger demand from China for iron pellets. Usinas Siderurgicas de Minas Gerais SA (BVSPA: USIM3) Brazilian-based steel company Usinas Siderurgicas de Minas Gerais SA (Usiminas) produces heavy plates, cold strips, hot strips and coated products. The company reported a net loss of R$112 million (US$55.56 million) in the rst quarter of 2009, compared with a net income of R$712 million (US$353.24 million) in the corresponding quarter of the previous year. Revenue dived 25% to R$2,670 The pressure to restructure the metal industry will intensify the longer the nancial crisis continues. The outlook for metal demand is uncertain, despite the incentives that the Brazilian Government has adopted to rekindle sectors that have a strong impact on the economy, such as the automotive and civil construction industries. The demand for at-rolled steel in the global market is likely to pick up in the second half of 2009, and this should benet Brazil, where the steel industry is facing a challenging year. million (US$1,325 million) in the quarter, compared with R$3,553 million (US$1,763 million) in the rst quarter of 2008. The current economic crisis that negatively affected the Brazilian metal industry has caused a plunge in the companys production. A drastic reduction in domestic and international demand has forced Usiminas to cut output to 50% of capacity and renegotiate all raw material supply contracts to reduce costs and stockpiles. Starting March 9, the Brazilian steelmaker halted blast furnace production at its Cubatao mill in Sao Paulo state for 90 days to cut costs. The stoppage reduced pig-iron output by 270,000 metric tons, equal to 6% of the plants annual capacity.
12
Country Profile
Chile
Sector Overview Chile has been a leading copper producer since the middle of the 19th century, and is now the worlds largest producer and exporter of the metal. Copper consistently accounts for more than half of the countrys total exports, while copper revenues have made a vital contribution to government revenues. However, the challenging condition of the economy, resulting in low prices for the red metal, hammered the Chilean metal industry in the rst half of 2009. The global crisis affected Chilean metal companies, with a sharp decline in local and international demand. The Federation of Chilean Industry estimates industrial production dropping 9.6% year-on-year during February 2009, with the construction distribution industries registered a drop of 23.5% from the equivalent month of 2008. The products most affected were iron and steel, production of which dropped by 50.5%, while production of non-metallic minerals including ceramics, cement and concrete decreased by 28.5%. Sector Performance In March 2009, Chiles industrial production slipped 7.1% compared with the same month of 2008, while industrial sales fell 8.3%, according to state-run INE. Chiles main exports totaled 429,620 tons in March, down 5.9% from the same month of the previous year. Central Bank of Chile gures show copper exports totaled US$1.449 billion in March, down 66% from the year earlier. The value of Chiles copper exports slumped 52% to US$1.754 billion in April 2009, compared with US$3.649 billion in the same month a year earlier. In 2008, copper export revenue was US$32.808 billion, down 13%, compared with US$37.583 billion in 2007, according to Chiles Central Bank. Copper export revenues have tumbled in tandem with prices for the red metal, pummeled in recent months as demand fell due to the global economic depression. The Chilean Copper Commission (COCHILCO) estimates Chile produced 5.33 million tons of the red metal in 2008, down 4.1% compared with 2007. Chile exported 5.405 million tons of copper last year, or 4.7% less than in the previous year. Copper output has fallen in recent years amid falling ore grades at the largest mines and after production interruptions at the massive Escondida mine, owned by global diversied miner BHP Billiton (LSE: BLT). Output also suffered at the worlds number one producer, Codelco, after strikes by subcontract workers. Leading Companies CAP SA (BSAN: CAP) CAP SA operates in the steel and mining sectors in Chile, making steel products ranging from semi-nished, bars and at steel, tubes to by-products. The company experienced a 75.4% year-on-year plunge in rst quarter of 2009 net prots to US$15.1 million, compared with the corresponding quarter of 2008. Its revenue shrank to US$305 million in the quarter, from US$489 million a year earlier. The tumble in prots was due to low demand and the consequence of the abrupt drop in economic activity, both globally and locally. It was also due to the nancial crisis in the US that started at the end of September last year. The slowdown affected all CAPs businesses, reaching its most critical point in the rst quarter of 2009. Steel sales dropped 48% to 183,340 tons in the rst quarter, of which 368 tons were exported, 71% less than a year earlier. Iron ore sales slipped 5% year-on-year to 1.28 million tons, of which 1.36 million tons was exported, 11% less than a year earlier. After the company shut down one of its blast furnaces on November 5 last year due to low demand, its Huachipato steel plant in region VIII ran at slightly more than 50% capacity. Molibdenos y Metales SA (BSAN: MOL) Molibdenos y Metales SA, a shareholder-owned Chilean corporation, processes molybdenum concentrates. It has two plants one in San Bernardo, South of the capital Santiago, and one in Cumpas in northern Mexicos Sonora state, known as Molymex. The companys net prots dropped 36% to US$22.5 million in the rst quarter of 2009, from US$35.1 million in the corresponding quarter of 2008, due to low metal prices.
13
Country Profile - Chile

In October last year, molybdenum was trading at over US$30 per pound, but the price has sunk sharply in tandem with that of copper and other commodities on demand fears amid the nancial crisis. The company expects the price of the metal used to harden steel will remain around US$10 per pound in 2009 and estimates that demand will fall 20% this year. At the end of April, the company announced plans to construct a plant for molybdenum processing at Hohhot City, the capital of Inner Mongolia Autonomous Region in China. Upon receipt of an environmental permit from the authorities, the company is scheduled to invest US$80 million in the plant. Market Outlook The outlook is bleak for the Chilean metal works industry for the rest of the year. Demand for steel is likely to remain weak in 2009 because of the continued reduction of steel inventories. Steel prices will remain weak due to the steel industrys low capacity utilization and costs being reduced by lower prices of input materials. Nevertheless, a majority of Chilean metal producers could still achieve a lower net debt position at the close of the second quarter of 2009 on an anticipated decline in working capital needs and a low level of capital expenditure amid the present market conditions. Despite the economic crisis, Cochilco expects copper output to reach 5.5 million tons in 2009, 3.7% higher than in the previous year. The increase would be due to a jump in capacity at the Collahuasi mine, the ramp-up of state copper company Codelcos Gaby mine and higher output at BHP Billitons Spence mine and 57.5%-owned Escondida mines. In 2010, copper output is likely to grow by 6.3% to 5.75 million tons, thanks to expected increases by Codelcos Andina and El Teniente mines, Escondida, Los Pelambres and Freeport-McMoRan Copper and Golds (NYSE: FCX) 80%-owned Candelaria operation, and the start of sulde mining at Tecks 90%-owned (TSX: TCK) Andacollo mine.
14
Country Profile
Mexico
Sector Overview As the global economic slump worsened and strained the Mexican economy further, Mexico saw its metal industry weaken signicantly. The industry was also hit by the H1N1 inuenza (swine u) epidemic that affected all sectors of the economy. This is set to affect GDP growth, which is likely to be lower than the earlier National Confederation of Industrial Chambers of Mexico (CONCAMIN) estimate of around 6%. Also affecting the industry was the countrys crime wave, with gangs becoming more daring and sophisticated, hijacking trucks and trains, and stealing massive loads of steel. With signicant government and police resources tied up ghting the drug cartels, thieves ramped up their efforts to steal freight. The Mexican Steel Chamber reports robberies skyrocketed by 250% in 2008, with 12,500 tons of steel carted off by thieves. In 2008, losses totaled MEX$150 million (US$11.08 million) and the pace accelerated in 2009. Mexicos third largest steel producer, Altos Hornos de Mexico SAB de CV (MXN: AHMSA), or AHMSA, was the victim of nearly 40 robberies after the beginning of 2008. The hijackings happened mostly along one stretch of deserted road between the cities of Monterrey and Monclova in northern Mexico. Rising unemployment due to the economic downturn has left legions of young men out of work, and this has aggravated the crime problem. Sector Performance The Mexican national statistics bureau INEGI estimates the countrys GDP in the rst quarter of 2009 slipped by 8.2% year-on-year compared with the same period of 2008. GDP of secondary activities fell 9.9%, with that of the manufacturing sector sinking by 13.8%, while construction industry GDP shrank by 7.7%. The Mexican economy is driven by resources and manufacturing, and the global downturn has slashed demand for steel, pushing the countrys economy into reverse. In the rst three months of 2009, Mexican steel production fell 35% to 3.103 million tons, compared with 4.757 million tons in the equivalent period the previous year, according to the Mexican steel association CANACERO. National steel consumption totaled 3.779 million tons, a plunge of 41% from 6.444 million tons in the rst quarter of 2008. This was due to the global nancial crisis reducing demand, and the swine u pandemic affecting the metal industrys performance as steel rms suspended production from May 1 to May 5 due to the u outbreak. Leading Companies Altos Hornos de Mexico SAB de CV (MXN: AHMSA) AHMSA, a Mexican-based steel company, specializes in the production of basic raw materials and nished products. It has corporate ofces in Monclova, in the center of the state of Coahuila, 155 miles from the US border. The companys net income sank 84.6% to MEX$136 million (US$10.04 million) in the rst quarter of 2009, compared with MEX$885 million (US$65.35 million) in the same quarter of 2008. Sales for the quarter fell 37.5% to US$436 million, compared with US$698 million in the rst quarter of 2008. The results reected the worldwide recession, which caused a drop of at least 50% in operation levels and placed the whole steel industry in a serious situation. Grupo Simec SAB de CV (AMEX: SIM) Grupo Simec SAB de CV, incorporated in August 1990, is a diversied manufacturer, processor and distributor of special bar quality (SBQ) steel and structural steel products. The companys net prot dropped 26% to MEX$440 million (US$32.49 million) in the rst quarter of 2009, compared with MEX$592 million (US$43.71 million) in the equivalent quarter of the previous year. Net sales dropped 30% to MEX$5.081 billion (US$375.18 million), compared with MEX$7.288 billion (US$538.14 million) in the rst quarter of 2008, due to lower shipments. Total sales outside of Mexico in the rst quarter shrank 59% to MEX$2.222 billion (US$164.07 million), compared with MEX$5.423 billion (US$400.43 million) in the same period of 2008. However, total Mexican sales grew 53%, from MEX$1.865 billion (US$137.71 million) in the rst quarter of 2008 to MEX$2.859 billion (US$211.11 million) in the equivalent quarter of 2009. Shipments of nished steel products dropped by 239,000 tons to 506,000 tons compared with 745,000 tons in the rst quarter of 2008.
15
Country Profile - Mexico

Overall quarterly gross prot totaled MEX$970 million (US$71.62 million), compared with MEX$1.237 billion (US$91.34 million) in the rst quarter of 2008. Gross prot as a percentage of net sales was 19%, compared with 17% in the same period 2008. Operating prot fell by 56% to MEX$385 million (US$28.43 million) from MEX$878 million (US$64.83 million). Operating prot as a percentage of net sales was 8% in the rst quarter, compared with 12% in the same period 2008. A 32% decline in shipments compared with the same period of the previous year affected the results. Market Outlook In the rst half of 2008, most Mexican steel companies enjoyed steady demand and record earnings, despite tightening credit markets. However, in the fourth quarter of 2009 the industry encountered falls in steel prices, demand and volumes. Battered by the growing global nancial crisis, construction activity began to decline, accompanied by a collapse in demand for durable goods such as automobiles, which affected the metals industry. This decline is likely to continue throughout 2009. With the world economy remaining in recession, Mexican steel consumption is set to remain subdued in 2009, with key consuming industries cutting production further. CANCERO estimates steel consumption slid 5% in 2008 to 18.5 million tons, and expects it to drop by up to 8% in 2009 to 17 million tons. Reduced demand and falling steel prices will put pressure on Mexican steel companies further, threatening their prots, margins and liquidity in the coming months.
16
Country Profile
Peru
Sector Overview The Peruvian metal works industry suffered greatly in the rst six months of 2009, after grappling with a weak economy and falling demand for its products. The Ministry of Economy and Finance of Peru estimates the economy grew by more than 9% in 2008, but may grow only by about 5% in 2009, as prices for metal and mineral exports, the Governments biggest source of revenue, fall further. In late 2008, Peru announced a US$3 billion stimulus package to boost construction and create jobs to combat the downturn. The stimulus package, designed to offset the fallout from the global economic crisis, should ensure growth of at least 5% in 2009. The global economic downturn was the cause of a major decline in industrial and manufacturing activities, which led to a reduction in the demand for steel in Peru and a slump in prices. Several companies have already postponed projects in the Andean country, including Madrid-based Repsol YPF (BM: REP) and Mexican-controlled Southern Copper Corp (BVL: PCU), which was forced to scale back work at its Tia Maria project. The Ministry of Economy and Finance expects that this year exports from Peru, one of the worlds leading metal producers, will slide 21% from the record US$31 billion posted in 2008, while imports will contract by 3.6%. In the rst half of 2009, metal volumes were down signicantly, as market conditions remained weak. Several companies laid off employees because of declining demand for steel worldwide, with thousands of workers in the countrys steel and mining sector losing their jobs as steel prices sank and companies delayed investment because of economic uncertainties. The Peruvian labor federation, Confederacion Unitaria de Trabajadores, estimates 5,460 mining and steel workers lost their jobs after the start of November last year as sinking global steel prices hammered the metal industry. About 600 workers were laid off at Empresa Siderurgica Del Peru SAA (BVL: SIDERC1). According to the federation, Corporacion Aceros Arequipa SA (BVL: CORAREC1), Perus largest steelmaker, told 1,500 people to stop working. Sector Performance Perus Ministry of Energy and Mining (MEM) estimates the countrys copper output slipped 1.33% in March 2009, compared with the same month of 2008, to 104,462 tons, largely due to weak copper prices. The drop in production and prices of metal exports was also the result of the global economic slowdown. Perus metal shipments account for more than half of total exports and are the Governments largest source of revenue. Since 2008, copper prices have dropped more than 60% as contracting economies slowed global demand for the metal. World copper spot and future prices also slid and in May London Metal Exchange transaction prices averaged US$2.06 a pound, taking the year-to-date average to US$1.74, down from US$3.15 in 2008. Copper prices are likely to stay weak in the rst half of 2010, but could see a slight recovery in the second half, as copper supply tends to be relatively tighter than that of other base metals. Leading Companies Empresa Siderurgica Del Peru SAA (BVL: SIDERC1) Empresa Siderurgica Del Peru SA (Siderperu), based in Santa Anita, is an iron and steel company that manufactures steel products. It is a subsidiary of Gerdau SA (BVSPA: GOAU3), and serves the construction, mining, and industrial sectors. The company posted a loss of S/.190 million (US$61.66 million) in the rst quarter of 2009, compared with a net prot of more than S/.67.5 million (US$21.91 million) in the equivalent quarter of 2008. The loss was mainly due to low prices and demand for steel. Sales slipped to S/.318 million (US$103.20 million), compared with S/.362 million (US$117.48 million) in the year earlier period. In May, the board of Brazilian steelmaker Gerdau approved US$140 million in investments to expand Peruvian subsidiary Siderperu. Before the global nancial crisis, the company aimed to increase steel output to 1.5 million tons a year in 2011, and three million tons a year by 2013. The Peruvian steelmaker is in the midst of an expansion from 400,000 tons per year to 700,000 tons per year in 2010. Corporacion Aceros Arequipa SA (BVL: CORAREC1) Corporacion Aceros Arequipa SA, produces corrugated steel, steel sections and bars for the metal mechanics, civil
17
Country Profile - Peru

engineering and metal industries. The company saw a net loss of S/.197 million (US$63.93 million) in the fourth quarter of 2008, compared with a net loss of S/.9.88 million (US$3.21 million) in the same period of 2007. Sales in the quarter climbed 8% to S/.391 million (US$126.89 million), compared with S/.362 million (US$117.48 million) in the fourth quarter of the previous year, but costs also picked up by 29% to S/.365 million (US$118.45 million), compared with S/.282 million (US$91.51 million) in the equivalent quarter of 2007. The Peruvian steelmaker halted production at its Pisco and Arequipa regional plants from November 24, 2008, and throughout all of December to carry out maintenance. It had sufcient stocks to continue supplying the market during the maintenance period. The company has resumed work at the Arequipa and Pisco plants and is operating at 90% capacity. As of June this year, the steelmaker had boosted output by nearly 300,000 tons a year, thanks to the newly installed transformer at its Pisco plant. The additional production will boost output from the current 550,000 to 580,000 tons to roughly 850,000 tons a year. Although the furnace at the Pisco plant is considered large, the previous small transformer limited production. The company thinks that the steel market outlook is more positive because of statements made by the countrys president urging Peruvians to invest in housing and infrastructure. Market Outlook The Peruvian economy is likely to continue to slow this year, with the economic pain extending into next year if the global slowdown intensies. The International Monetary Fund (IMF) last year estimated that Perus economic growth would likely slow to 6% this year. Economic growth in 2010 and beyond should average 6% or more a year. The outlook reects the slowdown in the global economy and tighter nancial conditions, which will affect the Peruvian metal market. Like those in other countries, the Peruvian economy is expected to be hit hard by declining metal prices and demand, since the metal industry contributes more than half of the countrys total exports and is one of the Governments biggest revenue earners.
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Country Profile
Venezuela
Sector Overview In the past two years, Venezuelan President Hugo Chavez has nationalized major steel, cement, electricity, telecommunications and oil projects in a bid to expand state control of the economy. Towards the end of May this year, the Government took over several iron and other metal companies as part of its drive to exercise control over the nations mineral wealth industries. The companies include Venezuelan steelmaker Siderurgica Venezolana SA (CAR: SVS), Tubos de Acero de Venezuela SA, also known as Tavsa, and Complejo Siderurgico de Guayana CA, or Comsigua. Also affected was iron producer Materiales Siderurgicos SA, or Matesi. Matesi is controlled by Venezuelas Materiales Siderurgicos, a company 50.2% owned by Tenaris (NYSE: TS) and 49.8% by Sidor. The Government argues the move will help the country reduce its reliance on imports and will boost local industry. Venezuela expressed interest late last year in buying a minority stake in the Venalum aluminum smelter that six Japanese companies, which together hold a 20% stake in Venalum, announced in June that they would sell. The decision to sell came after a long dispute with the Government over prices, delays in shipments, and low prices for the metal. Venalum is 80% owned by Venezuela with the other shares distributed among Showa Denko KK (TSE: 4004), Kobe Steel Ltd (TSE: 5406), Sumitomo Chemical Co Ltd (TSE: 4005), Mitsubishi Materials Corp (TSE: 5711), Mitsubishi Aluminum and Marubeni (TSE: 8002). The Government assessed the value of the Japanese companies 20% stake and was expected to offer a price. Sector Investment Brazilian construction company Andrade Gutierrez proposed to invest US$120 million in a new steel plant in Venezuelas eastern Bolivar state. Brazils president and his Venezuelan counterpart Hugo Chavez signed an agreement in October 2008 to build and operate a US$1.8 billion plant that will produce 1.5 million tons of steel a year. The plant will complement production from local steelmaker Sidor, making steel micro alloys for the military and construction sectors that Sidor currently does not manufacture. When it begins operating in the fourth quarter of 2011, it will increase Venezuelas annual liquid steel output by six million tons. The country will also be in a position to manufacture a whole series of products to spur the development of the domestic steel industry. In the second half of 2008, Venezuela and Cuba signed an agreement to create a joint steelmaking company, Aceros del Alba CA, located in the eastern state of Monagas, to make stainless steel products. Venezuela will invest US$1.5 billion in the plant, which is intended to produce 500,000 tons of stainless steel per year. Venezuela will own 51%, while Cubas Acinox Steel Industrial Group will own 49%. The two countries will also build a ferronickel plant in Cuba to provide the raw material for the steel plant. The Cuban plant will be 51% owned by Cuba and 49% by Venezuela. Construction of the steelmaking plant began in 2008, and is expected to be completed in 2011. Leading Company Siderurgica de Orinoco (Sidor) Sidor manufactures and distributes steel products and is the largest at and long steel producer in Venezuela, with an annual capacity of about 4.5 million tons of nished steel products. On May 7, 2009, the company became a subsidiary of Corporacion Venezolana de Guayana (CVG), after Argentine-controlled steel company Ternium SA (NYSE: TX) agreed to compensation of US$1.97 billion for its Sidor shares and transferred its 59.7% share of one of Latin Americas largest steel plants. The Venezuelan Government, through its heavy industries state holding group CVG, has already paid US$400 million in cash for the shares and will pay for the rest in two tranches. The Government will pay the rst tranche, US$945 million, in six equal quarterly installments, and the balance in October 2010. Before President Chavez ordered the takeover, Ternium controlled 60% of Sidor, the countrys top steel producer, while the Government owned 20%, and workers controlled the remaining 20%. After Sidor was nationalized, there was labor unrest, with the Government reprimanding some of the workers for making what it called unreasonable demands. In the rst two months of the year, output plummeted 25% against the same period in 2008, as the company struggled to introduce new management.
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Country Profile - Venezuela

Market Outlook In the rst quarter of 2009, the Venezuelan economy rose at its slowest pace, 0.3%, since 2003, as factory output contracted and export revenue declined, following a plunge in oil prices. Banco Federal CA expects the economy to contract 2% this year, as the fastest ination rate in Latin America erodes purchasing power and diminishes the impact of government spending. Government expropriations in the cement, oil, banking and steel industries are discouraging private investment, which does not help the economy. President Chavez cut the federal budget by 6.7% and, to cover a budget decit, raised sales tax and announced plans to sell US$15.8 billion worth of domestic bonds this year. The 2009 outlook for the Venezuelan steel industry is grim, with the country affected by the world economic crisis and compounded by an exodus by foreign investors following nationalization of many of the countrys industries. As steel prices remain unfavorable, demand is unlikely to improve this year while the global manufacturing slump continues. The presidents decision to nationalize Venezuelas steel companies has dealt another blow to the steel industry and to foreign companies, some of which have lost a great deal of assets.
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Currency Conversion Table

Currency exchange rates as of July 10, 2009
Currency Unit United States Dollars (US$) Argentina Pesos (ARS$) Brazilian Reals (R$) Chile (CLP) Colombia (COL$) Mexico Pesos (MEX$) Peru (S/.) Venezuela (Bs)
Units per US$ 1 3.80686 2.01566 554.118 2,135.59 13.54324 3.08151 2,152.30
US$ per unit 1 0.26268 0.49612 0.001805 0.0004683 0.07384 0.32452 0.0004646
Source: Federal Reserve Bank of New York Note: Base currency is United States Dollar (USD)
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The Scope Of This Report

This report looks at the metal works industry in Latin America, with a focus on Brazil, Chile, Mexico, Peru and Venezuela. This report aims to paint a picture of the current environment and industry developments in a number of industry segments using available data and examination of key public companies in each segment whose core services fall into the above categories. Some reported key nancial results are presented in the comparative data tables on proceeding pages. Research analysts draw on a range of credible industry and company data sources as well as news and information services to research and analyze the current trading environment, industry landscape and market trends and outlook for a particular sector. Primary sources are used, unless otherwise indicated, and include company data, e.g. annual reports and company nancial results; macroeconomic and trade data; data and information from global and country regulatory, industry and trade bodies; government data; and reports from industry organizations and private research organizations. Industries covered by the industry reports are dened by standard industry classication systems and leading companies are identied on this basis. The following SIC codes are relevant to the industry: 3312 (Steel Works, Blast Furnaces (Including Coke Ovens) and Rolling Mills); 3316 (Cold-Rolled Steel Sheet, Strip and Bars); 3317 (Steel Pipes and Tubes); 3331 (Primary Smelting and Rening of Copper); 3334 (Primary Production of Aluminum); 3339 (Primary Smelting and Rening of Non-ferrous Metals, except Copper and Aluminum); 3341 (Secondary Smelting and Rening of Non-ferrous Metals); 3353 (Aluminum Sheet, Plate and Foil).
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Key References
Global and Regional
Asia-Pacic Economic Cooperation (APEC) APEC is a forum to facilitate economic growth, cooperation, trade and investment in the Asia-Pacic. http://www.apec.org/ Council on Hemispheric Affairs (COHA) Founded in 1975, COHA, a non-prot, tax-exempt independent research and information organization, was established to promote the common interests of the hemisphere, raise the visibility of regional affairs and increase the importance of the inter-American relationship, as well as encourage the formulation of rational and constructive US policies towards Latin America. http://www.coha.org/ International Federation of Chemical, Energy, Mine and General Workers Unions (ICEM) ICEM is a global trade union that monitors and negotiates global agreements with multinational companies, mainly on workers rights, equality at work, standards of health, safety and environmental issues worldwide. http://www.icem.org/ International Iron and Steel Institute (IISI) IISI is an international organization of 190 steel producers established to provide a forum to address the major strategic issues and challenges it faces on a global basis. http://www.worldsteel.org/ International Aluminum Institute (IAI) IAI is the Global Forum of the worlds Aluminum Producers and produce timely publications and reports, compile key industry statistics, host events and provide a global meeting point for its members. http://www.world-aluminium.org/ International Labor Organization (ILO) Founded in 1919, the ILO is a non-prot organization that aims to promote human rights at work, encourage decent employment opportunities, enhance social protection and strengthen dialogue in handling work-related issues. http://www.ilo.org/ International Monetary Fund (IMF) The IMF is an international organization of 184 member countries established to promote international monetary cooperation, exchange stability, orderly exchange arrangements, foster economic growth and high levels of employment, and promote temporary nancial assistance to countries to help ease balance of payments adjustment. http://www.imf.org/ International Copper Study Group (ICSG) ICSG, established in 1992, in an intergovernmental organization that serves to increase copper market transparency and promote international discussions and cooperation on issues related to copper. http://www.icsg.org/ Latin American Iron and Steel Institute (ILAFA) ILAFA is a civil non-prot non-governmental international organization that gathers and looks after the interests of Latin American iron and steel industry and companies. http://www.ilafa.org/
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London Metal Exchange (LME) The London Metal Exchange provides a global forum on managing the risk of future price movements in non-ferrous metals. Prices published on LME are seen as a true reection of demand and supply by trade and industry. http://www.lme.co.uk/ Metals Economics Group (MEG) Founded in 1981, MEG provides research data and analytical tool on global minerals exploration, development, and production, as well as strategic planning issues and acquisitions activity. http://www.metalseconomics.com/ The Economic Commission for Latin America and the Caribbean (ECLAC) Established in 1948, the ECLAC aims to contribute to the economic development of Latin America, coordinate efforts, and reinforce economic relationships among countries. Headquartered in Santiago, Chile, it is one of ve regional commissions of the United Nations. http://www.eclac.org/ US Geological Survey (USGS) An independent fact-nding government agency of the United States Government that collects, monitors, analyzes and provides scientic understanding about natural resource conditions, issues and problems in the US. http://www.usgs.gov/ World Steel Association The association is an international trade body for the iron and steel industry, representing about 180 steel producers (including 18 of the worlds 20 largest steel companies), national and regional steel industry associations, and steel research institutes. http://www.worldsteel.org/
Brazil
Associacao Brasileira do Aluminio (ABAL) Founded in 1970, ABAL is the Brazilian Aluminum Association to assist development in the aluminum industry together with public authorities and plans that cover the industry in the country. http://www.abal.org.br/ Associacao Nacional dos Fabricantes de Veiculos Automotores (Anfavea) Anfavea, founded in 1956, brings together manufacturers of autoveiculos (cars, light commercial, trucks, buses) and agricultural machines (tractors with wheels and mats, harvesters and backhoe) with industrial plants in Brazil. http://www.anfavea.com.br/ Departamento Nacional de Producao Mineral (DNPM) The National Department of Mineral Production was established as a self-governing body in Brazil to provide information and data on mining or mineral production in the country. http://www.dnpm.gov.br/ Instituto Brasileiro de Siderurgia (IBS) IBS, the Brazilian Steel Institute, founded in 1963, undertakes the goal of bringing together and representing Brazilian steel companies, supporting their interests and promoting their development. http://www.ibs.org.br/
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Chile
Comision Chilena del Cobre (COCHILCO) COCHILCO is a national organization that provides reliable information to sustain and reinforce the Chilean mining industry, except for coal, oil and gas. http://www.cochilco.cl/ Federation of Chilean Industry (SOFOFA) SOFOFA, founded in 1883, is a private, non-prot trade association representing the views and interests of Chilean industry. http://www.sofofa.cl/ Instituto Nacional de Estadsticas (INE) The National Statistics Institute is one of Chiles more prominent institutes, and has carried out several censuses, surveys and studies about the national reality since 1843. http://www.ine.cl/
Mexico
National Confederation of Industrial Chambers of Mexico (CONCAMIN) CONCAMIN is an umbrella organization that represents industrial chambers of commerce throughout Mexico. http://www.concamin.org.mx/ Camara Nacional de la Industria del Hierro y el Acero (CANACERO) The Mexican Steel Producers Association is a self-governing institution that brings together steel producers and transformers in Mexico and consists of 63 associated companies. http://www.canacero.org.mx/ Instituto Nacional de Estadstica Geografa e Informatica (INEGI) The National Institute of Statistics, Geography and Information is a subsidiary of the Secretariat of Property and Public Credit, which provides statistical and geographic information on the territory, the pollution and the economy of Mexico. http://www.inegi.gob.mx/
Peru
Commission of Promotion of Peru for the Export and the Tourism (PROMPERU) PROMPERU develops and promotes exports and tourism activity in the country. http://www.promperu.gob.pe/ Instituto Nacional de Estadstica e Informatica (INEI) The Peruvian National Institute of Statistics reports on the state of the Peruvian economy, and social environment and helps monitor changes in Canadian society and industry. http://www.inei.gob.pe/ Ministry of Energy and Mining (MEM) The Ministry of Energy and Mines of Peru is a ministry of the Peruvian Government responsible for managing the energy and mining sectors of Peru. http://www.minem.gob.pe/
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Ministry of Economy and Finance of Peru The ministry in charge of the planning and execution of the economic policies of the Peruvian Government with the goal of optimizing the economic and nancial activities of the state, managing macroeconomic activity, and achieving sustainable growth of the nations economy. http://www.mef.gob.pe/
Venezuela
Association of Metallurgical Industrialists and Mining of Venezuela (AIMM) AIMM is a civil association that represents the industrial companies of the metallurgical and mining sector in Venezuela. http://aimm-ven.org/
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Comparative Company Data | LATIN AMERICA
Company Metalurgica Gerdau SA Usinas Siderurgicas de Minas Companhia Siderurgica Nacional Navarino SA Grupo IMSA SA de CV Siderar SAIC Molibdenos Y Metales SA Caraiba Metais SA ArcelorMittal Inox Brasil SA Madeco SA Company Metalurgica Gerdau SA Usinas Siderurgicas de Minas Companhia Siderurgica Nacional Navarino SA Grupo IMSA SA de CV Siderar SAIC Molibdenos Y Metales SA Caraiba Metais SA ArcelorMittal Inox Brasil SA Madeco SA Company Metalurgica Gerdau SA Usinas Siderurgicas de Minas Companhia Siderurgica Nacional Navarino SA Grupo IMSA SA de CV Siderar SAIC Molibdenos Y Metales SA Caraiba Metais SA ArcelorMittal Inox Brasil SA Madeco SA Company Metalurgica Gerdau SA Usinas Siderurgicas de Minas Companhia Siderurgica Nacional Navarino SA Grupo IMSA SA de CV Siderar SAIC Molibdenos Y Metales SA Caraiba Metais SA ArcelorMittal Inox Brasil SA Madeco SA Company Metalurgica Gerdau SA Usinas Siderurgicas de Minas Companhia Siderurgica Nacional Navarino SA Grupo IMSA SA de CV Siderar SAIC Molibdenos Y Metales SA Caraiba Metais SA ArcelorMittal Inox Brasil SA Madeco SA
Country Brazil Brazil Brazil Chile Mexico Argentina Chile Brazil Brazil Chile Total Revenue - FYE - 1 $17,174,489,762 $7,755,872,651 $6,418,503,226 $3,841,669,965 $3,472,246,655 $2,316,823,657 $2,056,939,000 $1,702,743,338 $1,661,001,171 $1,071,387,514 Net Income - FYE - 1 $2,426,431,417 $1,779,464,236 $1,639,467,041 -$13,962,176 $230,915,235 $393,280,269 $132,213,000 $8,365,778 $293,742,917 $150,256,782 Total Current Assets FYE - 1 $8,692,176,157 $5,028,290,603 $4,710,316,971 $1,092,003,830 $1,377,899,171 $1,156,996,841 $838,357,000 $944,861,711 $848,426,130 $467,900,888
Ticker GOAU3 USIM3 CSNA3 NAVARINO IMSA ERAR MOLYMET CRBM3 ACES3 MADECO Total Revenue - FYE - 2 $11,026,819,948 $5,813,775,697 $4,233,373,449 $3,970,664,831 $3,140,061,162 $2,046,236,875 $2,089,597,000 $1,530,564,739 $1,366,215,199 $1,398,197,685 Net Income - FYE - 2 $630,051,042 $1,177,926,013 $546,722,079 $35,207,333 $192,143,025 $430,517,225 $139,313,000 $170,058,066 $252,725,484 $43,017,501 Total Current Assets FYE - 2 $6,617,701,241 $3,550,565,675 $3,712,368,064 $1,129,694,820 $1,595,107,034 $877,949,924 $748,421,000 $850,939,827 $601,868,024 $622,770,384
Exchange BVSPA BVSPA BVSPA BSAN MEX BUE BSAN BVSPA BVSPA BSAN Total Revenue - FYE - 3 $9,161,057,178 $5,577,011,504 $4,292,685,712 $2,775,406,380 $2,888,433,804 $1,696,969,305 $974,178,000 $850,941,710 $1,166,986,684 $1,128,687,048 Net Income - FYE - 3 $545,517,684 $1,675,759,740 $857,581,149 $52,657,405 $288,816,497 $437,633,917 $34,939,000 $10,166,788 $248,195,763 $60,969,961 Total Current Assets FYE - 3 $5,208,128,983 $2,839,723,731 $3,491,460,035 $1,063,575,563 $1,396,678,226 $695,518,692 $563,773,000 $534,151,307 $569,222,270 $468,889,704 Prot Margin (Most Recent Yr) 14.13 22.94 25.54 -0.36 6.65 16.97 6.43 0.49 17.68 14.02
Primary SIC 3312 3312 3312 3339 3399 3312 3313 3331 3312 3351 EBITDA - FYE - 1 $2,903,990,463 $2,902,288,920 $2,843,849,649 N/A N/A N/A N/A $44,022,440 $442,117,537 N/A EPS - FYE - 1 $5.57 $0.00 $0.00 $0.00 $0.41 $0.00 $0.00 $0.28 $0.00 $0.00 Long-Term Debt FYE - 1 $7,446,391,585 $1,128,736,606 $3,888,297,896 $325,308,753 $146,104,347 $190,232,137 $176,334,000 $99,508,555 $139,126,668 $44,497,015 Date FYE - 1 31-Dec-2007 31-Dec-2007 31-Dec-2007 31-Dec-2006 31-Dec-2006 31-Dec-2008 31-Dec-2006 31-Dec-2007 31-Dec-2006 31-Dec-2008 3354 3085 3351 2819 3315 3441 1411 3398 3316 3316 5051 2813 4911 7922 3325
Other SICs 7374 2819 4011 4449 3711 6719 3714 5039 2421 212
3086
3081 EBITDA - FYE - 3 $2,229,180,601 $2,418,608,391 $1,624,552,453 N/A N/A N/A N/A $39,804,559 $364,130,343 N/A EPS - FYE - 3 $4.42 $0.00 $0.00 $0.00 $0.51 $0.00 $0.00 $0.34 $0.00 $0.00 Long-Term Debt FYE - 3 $2,594,832,143 $980,449,044 $3,136,471,796 $318,088,919 $377,262,629 $232,196,228 $163,625,000 $140,193,730 $318,647,843 $135,121,594 Date FYE - 3 31-Dec-2005 31-Dec-2005 31-Dec-2005 31-Dec-2004 31-Dec-2004 31-Dec-2006 31-Dec-2004 31-Dec-2005 31-Dec-2004 31-Dec-2006
EBITDA - FYE - 2 $2,519,499,883 $1,925,620,698 $1,240,177,008 N/A N/A N/A N/A $219,670,803 $370,568,362 N/A EPS - FYE - 2 $3.42 $0.00 $0.00 $0.00 $0.34 $0.00 $0.00 $5.67 $0.00 $0.00 Long-Term Debt FYE - 2 $3,274,032,779 $1,086,002,810 $3,907,664,247 $331,607,586 $263,091,037 $128,903,829 $272,041,000 $170,416,764 $185,626,737 $131,434,348 Date FYE - 2 31-Dec-2006 31-Dec-2006 31-Dec-2006 31-Dec-2005 31-Dec-2005 31-Dec-2007 31-Dec-2005 31-Dec-2006 31-Dec-2005 31-Dec-2007
Return on Equity (Most Recent Yr) 69.10 25.43 38.75 -6.36 12.95 18.97 35.20 1.77 22.96 23.41
Notes to Comparative Data

- All gures are in United States dollars. - All gures are as reported by the company. - N/A = Data Not Available. - Companies ranked by total revenue for the full year most recently reported.
Denitions
- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc. - EBITDA = Earnings before interest, taxes, depreciation and amortization. - EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items. - Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories. - Long Term Debt = Debt due to be paid at a date more than one year in the future. - Return on Equity = The companys earnings divided by its equity (book value). - Prot Margin = The companys net income as a percent of revenues.
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Notes
28
Notes
29
Industry Reports Coverage 2009

Regional Reports
North America
Automotive Aviation Banking Biotechnology Chemicals Electricity Food & Beverage Healthcare Heavy Construction Hospitality & Tourism Insurance IT & Technology Media Medical Instruments & Equipment Metal Works Mining Oil & Gas Pharmaceuticals Precious Metals Property & Development Retailing Telecommunications
Europe
Automotive Aviation Banking Biotechnology Chemicals Food & Beverage Insurance IT & Technology Media Oil & Gas Pharmaceuticals Property & Development Telecommunications
Asia-Pacific
Automotive Aviation Banking Biotechnology Chemicals Food & Beverage Heavy Construction Insurance IT & Technology Media Oil & Gas Pharmaceuticals Property & Development Telecommunications
Latin America
Automotive Banking Chemicals Food and Beverage Insurance Metal Works - Iron and Steel Mining Oil & Gas Property Textiles
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A Company and Industry Analysis - Latin America - Metal

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Industry Report - Metal Works - July 2009

Adding Value to Information Since 1900

Metal Works Sectors

Industry Report - Metal Works - July 2009

months. Mergent, Inc., a leading provider of

Industry Report - Metal Works - July 2009

Table 1: Stock Performances of Leading Latin American Metal Works Companies

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Country Brazil Mexico Argentina Chile Peru Venezuela

% Change (41.7%) (32.4%) (43.1%) (44.6%) (44%) 1.1%

Table 3: Aluminum Production by Region (000 tons)

Period 2007 2008 Jan-May 2008 Jan-May 2009

Africa 1,815 1,715 705 681

North America 5,642 5,783 2,450 2,055

Latin America 2,558 2,660 1,096 1,052

Asia 16,305 17,028 6,977 6,313

West Europe 4,305 4,618 1,942 1,633

East/Central Europe 4,460 4,658 1,931 1,742

Oceania 2,315 2,297 963 909

Total 37,400 38,759 16,064 14,385

Source: International Aluminum Institute

Industry Report - Metal Works - July 2009

Country Venezuela Brazil Mexico Argentina Chile Colombia Peru

% Change (16%) 1.8% 1.1% 5.6% (11.8) (8.3) 22.2%

Table 5: Top Steel Producers in Latin America

Country Brazil Mexico Argentina Venezuela World

2008 (million tons) 33.7 17.2 5.5 4.2 1,326.5

2007 (million tons) 33.8 17.6 5.4 5.0 1,351.3

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Market Trends & Outlook

Industry Report - Metal Works - July 2009

Market Trends & Outlook

Industry Report - Metal Works - July 2009

Table 6: Brazilian Steel Output and Sales

000 tons 3000 2500 2000 1500 1000 500 0

Source: Brazilian Steel Institute

Industry Report - Metal Works - July 2009

Country Profile - Brazil

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Country Profile - Chile

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Country Profile - Mexico

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Country Profile - Peru

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Country Profile - Venezuela

Industry Report - Metal Works - July 2009

Currency Conversion Table

Industry Report - Metal Works - July 2009

The Scope Of This Report

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Industry Report - Metal Works - July 2009

Comparative Company Data | LATIN AMERICA