Brazil’s Steelmaker Gerdau Counting on World’s Growing Steel Hunger

Gerdau, steel company from Brazil According to information supplied by the president and CEO at Brazilian steel-maker company Gerdau, André Gerdau Johannpeter, Asia and Latin America together with the Middle East should boost their product's global consumption in 2008, which he expects should grow between 6% and 7%.

In the first half this year, global steel production grew 5.7% to reach 696 million tons, according to figures provided by the International Iron and Steel Institute (Iisi).

The Brazilian-based Gerdau is a worldwide leader in long specialty steels products for the automobile industry, and according to news stories published in the Brazilian media this week, the company is contemplating establishing a factory in the Middle East, in order to manufacture long steel for the construction industry.

In the first half this year, Gerdau invested US$ 4 billion in acquisitions and immobilized assets.

Brazil exports steel to the Middle East, a region where most of the Arab countries are located. From January to June this year, the country sold US$ 106 million in rebar to the Arab countries, and US$ 82.4 million in semi-manufactured products.

Upon releasing its half-year results last week, Gerdau did not provide detailed information regarding the destinations to which it exports. However, the company informed that it posted revenues of US$ 994.5 million in foreign sales. Exports from the company's units in Brazil totaled 1.4 million tons.

The volume of exports by Gerdau decreased 2.8%. The largest reduction was that of long steel production, as the company had to cater to a rise in domestic demand. According to Johannpeter, the reduced flow of exports helped the company reduce its costs and increase its margins, as expenditures on domestic product distribution are lower than those on foreign market distribution.

Gerdau promises to sustain its expansion throughout the year. The company owns units in Brazil, Argentina, Canada, Chile, Colombia, Spain, United States, Guatemala, India, Mexico, Peru, the Dominican Republic, Uruguay and Venezuela.

In the first half, the company took several important steps, such as the acquisition of a complementary share of Aços Villares, in Brazil, the purchase of Macsteeel, Century Steel, and Hearon Steel, in the United States, and the acquisition of a larger share at Diaco, in Colombia. Gerdau also made purchases in Chile, Mexico, Guatemala and Spain.

The consolidation of new companies and rising global demand levered Gerdau's performance in the first half. The company had a 35.2% increase in gross margin, which totaled 22.3 billion reais (US$ 14.1 billion), and a 38.3% rise in net margin, which reached 3.2 billion reais (US$ 2 billion).

The earnings before interest, taxes, depreciation and amortization (EBITDA) totaled 4.7 billion reais (US$ 2.9 billion) from January to June, with growth of 51.7% and a margin of 23.6%. Raw steel production rose to 10.8 million tons, representing growth of 25.6% over the same period of 2007.

During a press conference, Johannpeter and the executive vice president for finance, accounting and investor relations at Gerdau, Osvaldo Schirmer, stated that both the domestic market and the company are going through a good moment, as demand is on a high.

However, costs have risen, boosted by higher prices of ores, scrap iron and electric power. "The strong global demand allowed for a price alignment. By reducing our costs, we managed to increase our margins," said Schirmer.

Anba – www.anba.com.br

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