Brazil-based Companhia Siderurgica Nacional (SID), or CSN recently announced that the company will be investing in Spain’s cement and steel assets in an effort to expand its portfolio in the country.
The company will acquire the cement and four steel making assets of Grupo Alfonso Gallardo for approximately $1.3 billion, incurring expenditure of roughly $768.5 million and debt assumption of $570.5 million. Completion of the transaction is subject to regulatory approvals.
Grupo Alfonso Gallardo is Spain's largest maker of steel reinforcing rods, or rebar. The assets include Cementos Balboa, a cement-maker with an annual production capacity of 1.4 million tons; rebar mill Corrugados Azpeitia; and wire and wire-mesh mill Corrugados Lasao, besides the two German steelmaking and marketing companies, Stahlwerk Thuringene and Gallardo Sections.
Companhia Siderurgica produces hot- and cold-rolled flat steel, galvanized sheets, and tin plates for the packaging, automotive, and construction industries. The growth prospects of CSN appear to be encouraging, considering the various projects that are being carried out by the company and the growth prospects of the global steel demand. Further, steel demand in Brazil will probably get a boost as the country will host the 2014 World Cup soccer and the 2016 Rio de Janeiro Olympics.
Moreover, its entrance into the cement business seems to be an added advantage. The acquisition of the Spanish and German assets will enable CSN to diversify its mining, cement and logistics businesses.
We believe that global steel demand in the quarters ahead will probably be on the rise, benefiting from the reviving global economy, increasing private and public capital spending, falling unemployment levels and growth of the emerging economies, especially China and Brazil. Moreover, Brazil is likely to witness a rise in steel demand as the country will host the soccer World Cup in 2014 and the Rio de Janeiro Olympics in 2016.
Despite these positives, the growth momentum gets restricted because of the possibilities of weak results in the quarters ahead, while its mounting debt level, high cyclicality, growing competition in the industry and rising manufacturing cost all add to the growing concern. The company faces stiff competition from Usiminas, Arcelor Mittal (MT) and Gerdau (GGB).
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