Arms of iron and steel: Brazil's CSN looks to become a global iron miner while expanding its steel operations abroad.

Brazilian steel company Companhia Siderurgica Nacional (CSN), the country's biggest steel producer and the Latin American leader in flat steel, has set its sights high: To reinforce its position as the second-largest iron-mining operation in the country, behind only Brazil's Companhia Vale do Rio Doce (CVRD), and to join the exclusive global club of the world's largest suppliers of the commodity.

"We want the mining arm of our operations to be as important as the steel-making side," says Lauro Rezende, executive director of investments and of investor relations for the steel group, which is formed of 13 companies integrating steel plants, iron mines, distribution and port terminals.

Although today the priority is iron-ore mining, for CSN--led by Benjamin Steinbruch, who once headed CVRD before the two companies dissolved their cross-holdings in 2001--plans for steel also are ambitious. The company is studying opportunities for acquisitions or mergers abroad in order to expand output. A new steel plant will double current annual production of 5.8 million tons of raw steel, at an estimated investment cost of US$2.6 billion, assuming prospecting results pan out. Seeking to maintain focus on its program of acquisitions and growth, CSN has programmed $520 million in investments in 2005.

One significant contract calls for the delivery of 54.7 million tons of iron ore to Japan during a 10-year span. The deal was secured by CVRD, which exercised its right of preference to buy the ore from CSN. Although CSN is trying to remove this right from CVRD through Brazil's competition regulators, Rezende says nothing will stop the steel company from moving ahead with its plans. "The more CVRD wants to exercise its monopolistic power, the more it will cost them to block us," Rezende says. CVBD has to pay the same price to CSN for the ore that it would pay on the open market.

CSN also is taking advantage of rising revenues, thanks to the "China effect." China in the last five years has been responsible for 95% of the increase in demand worldwide for iron ore, says Renato Prado, a steel analyst with stock brokerage Fator Corretora. "CSN got into the game at the right moment. There are no limits in this market, and the outlook is very good" he says. For the iron mining business an international presence is crucial; for steel it's no different. A study of the sector by the Instituto Nacional de Altos Estudos concluded that the steel industry in Brazil needs to make alliances abroad to grow.

Making those kinds of connections are at the heart of CSN's strategy, which identifies the best path toward picking up economies of scale as extending its reach beyond its borders. The strategy was strengthened last year when the company began a series of investments in steel that will last eight years and reach a total of $2.5 billion, beginning its process of internationalization by taking total control of CSN's operations in the United States and 50% of Lusosider, in Portugal. In Brazil, CSN gained operating and financial control of GalvaSud, which helped it take the lead in rolled steel at 5 million tons produced a year. In 2005, the company bought Estanhos de Rondonia--becoming in the process self-sufficient in tin--and it plans to invest $43 million to build a cement plant.

CSN does not lack the financial muscle to carry out its expansion plans. Profits in the first quarter were $275 million, up 115% from the same period the year before. The company also reduced by 25% its debts, which in December totaled $1.7 billion. Last year was the best ever for CSN in its history as a private company. Profits reached $746.6 million, up 109% from 2003, on revenues of $3.69 billion, setting a record for revenues for the third consecutive year.

Competitive. In his message upon releasing 2004 results, Steinbruch--a member of the family that this year took control of CSN after buying 50% of the company once held by the Rabinovich family--explained the company's excellent performance as the result of the combination of hard work and competitive advantages in terms of cost, raw materials and logistics, referring to CSN's position as the most cost-competitive steel producer in the world, and its being the only Brazilian steel company that is integrated and self-sufficient in terms of nearly all of its raw materials, with the exception of coal. "Now, we want to widen CSN'S presence in steel at the global level and become a player in mining," Steinbruch wrote.

MARGARIDA O. PFEIFER, SAO PAULO