Siderar S.A.I.C.

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Siderar S.A.I.C.

Avenida Leandro N. Alem 1067
Buenos Aires, C.F. C1001AAF
Argentina
Telephone: (54) (11) 4018-2100
Fax: (54) (11) 4318-2460; 4318-6417
Web site: http://www.siderar.com

Public Company
Incorporated: 1962
Employees: 4,724
Sales: ARS 2.73 billion ($925.42 million) (2003)
Stock Exchanges: Buenos Aires
Ticker Symbols: ERAR
NAIC: 331111 Iron and Steel Mills

Siderar S.A.I.C. is the leading Argentine integrated steelmaking facility, converting iron ore, coke, and pig iron to raw steel in order to produce hot-and cold-rolled coils and plates of steel and other steel products. These goods are destined primarily for tube and pipe manufacturing and for the automotive, home-appliance, construction, and agricultural sectors. The company is majority owned by Organizacion Techint, Argentina's largest holding company, which also has majority control of Tenaris S.A., the world's largest producer of seamless steel pipes and tubes.

State-Run Steelmaking Enterprise: 1947–92

Only one recently established steel manufacturer was operating in Argentina in 1947, when the government founded Sociedad Mixta Siderurgia Argentina (Somisa). Its first director, Manuel Savio, was a military engineer who had previously organized a government agency charged during World War II with securing arms and munitions in case Argentina entered the war or was subject to naval blockade. Promoted to the rank of general, Savio headed Altos Hornos Zapla, an enterprise owned by the nation's ministry of defense that, in the late 1940s, began making steel in the province of Jujuy, but on a very small scale.

A decade later, Somisa established a steel plant in the district of Ramallo, Buenos Aires, on a site extending about two miles along the bank of the Parana River, 232 kilometers (144 miles) north of the capital near the town of San Nicolas. Officially inaugurated in 1960 to produce a wide range of hot-and cold-rolled steel coils, sheets, and plates and also tin plate, it turned out its first ribbon of molten steel the following year. As a military-run company under a military regime, Somisa had little to fear from competition. Acindar Industria Argentina de Aceros S.A., closest to it in size, received 70 percent of its raw steel from Somisa and generally confined its output to rods and special steels. The government rejected, until 1975, Acindar's proposal to build a new blast furnace and produce an additional 800,000 tons of steel a year. But after Acindar opened fully integrated facilities in 1978 and acquired several smaller steelmakers in 1981, it became a serious competitor to Somisa.

Somisa added a second blast furnace to its facilities in 1974 and now had the capacity to raise its raw-steel production to 2.5 million metric tons a year, 55 percent in the form of rods, rails, and structural steel, and 45 percent as hot-and cold-rolled coils, sheets, and plates. The enterprise even had a plan to double its steel production to five million tons a year. Economic conditions, however, were restricting actual production to about 1.5 million metric tons annually. Somisa was Argentina's fifth largest enterprise in 1975, with sales of ARS 8.08 billion (about $230 million). By 1980, however, it had fallen to 13th, and by 1985, when it lost 40.86 million australes (about $49 million), it had dropped to 16th, behind Siderca S.A.I.C., Organizacion Techint's corporation for making seamless steel tubes, used chiefly for oil and gas projects.

Anticipating a growing domestic market and seeking greater volume in order to improve productivity, Somisa both expanded its manufacturing capacity and its range of products. It led Argentina in production of raw steel, cold-rolled products, steel profiles, and rods, and it was the only Argentine producer of hot-rolled products and tin plate. Unfortunately, domestic demand did not increase, and so the company was forced to seek new customers in the highly competitive export market, where capacity also far outstripped demand. In 1990 Somisa was exporting more than half of the output from the 2.3 million metric tons of steel it was producing. As a result, the company was losing $20 million each month in operating costs. Moreover, its debt was rising, and there were no funds available for necessary maintenance and modernization of the plant.

Carlos Menem, who was elected president of Argentina in 1989, adopted a program of free trade that involved selling heavily protected major state-owned enterprises, among them Somisa. The company's plant included two blast furnaces, two continuous casters, four coke-furnace batteries, a hot-strip mill, and other finishing facilities. Its value to a private investor, however, had very little to do with its claimed book value of $2 billion, since the older pieces of equipment were becoming obsolete and the enterprise was also one of Argentina's largest employers—a liability. Its 12,094 workers at the end of 1990 were far in excess of those employed by Somisa's foreign competitors, in terms of manpower per ton of steel output. In 1991, on the eve of privatization, nearly 6,000 employees were dismissed. The company's sales came to $624.2 million that year.

A total of 80 percent of Somisa—which had been renamed Aceros Parana S.A.—was sold in 1992 for $163.6 million to a consortium that also assumed $250 million of the company's estimated debt of $900 million. The main share was taken by Propulsora Siderurgica S.A.I.C., a cold-rolled steel unit of the privately owned Organizacion Techint holding company, which included Siderca, the Argentina-based multinational manufacturer of the seamless steel pipes used in oil and gas projects. Other members of the consortium were Brazilian and Chilean mining and metals enterprises. Twenty percent of the shares were set aside for offer to the mill's workers. Aceros Parana was merged with Propulsora Siderurgica S.A. and Aceros Revestidos S.A., a manufacturer of coated steel products, in 1993 to form Siderar S.A.I.C.

Siderar in the 1990s

Siderar was now in the hands of Organizacion Techint's owners, the Rocca family. Agostino Rocca had become vice-president of the Dalmine S.p.A steel plant, largest in Italy, in 1931. He continued in this capacity when the plant was nationalized by Benito Mussolini's government during World War II and came to Argentina in 1946, establishing an industrial empire that included Dalmine Siderca (later Siderca), founded in 1954, and Propulsera Siderurgica (1961). The latter was originally intended to be a fully integrated steelmaking facility like Somisa, but the military junta ruling Argentina at the time did not want it competing with a state company and approved it only as a plant for making cold-rolled steel products. To sweeten its decision, the military, according to muckraking journalist Luis Majul, allowed Propulsora Siderurgica to buy hot-rolled steel from Somisa at a price so low that Somisa lost $80 million to $100 million a year on the contract for 20 years. By the 1990s Propulsora Siderurgica was turning out 600,000 metric tons of cold-rolled steel a year and had annual revenue of some $200 million to $250 million.

Siderar's management embarked on a five-year, $438 million investment program, with priority given to retiring the older blast furnace, renovating the newer one, and installing a new electrogalvanizing line. The program also called for upgrading the coke batteries and increasing the hot-strip mill output. Siderar also closed facilities that were turning out products seen as continuing to be unprofitable in the near future. In addition, the company contracted out operation of the central thermoelectric plant—its supply of electric energy—production of industrial gases, and management of the river port where the enterprise received its raw materials. Siderar also reorganized operations, creating separate business units to serve its various clients: the automotive, container, commercial products, and home-appliance industries, and construction, agriculture, roadbuilding, and international customers. In general, these customers tended to be, as before, small and medium-sized companies. A heavy emphasis was placed on personnel training, both in Argentina and abroad, in keeping with longstanding tradition within Organizacion Techint as a whole. At the same time, the company outsourced to third parties areas in which it did not specialize in order to concentrate on its core business, rolled-steel products. Between 1992 and 1996 Siderar raised its share of domestic consumption of flat-steel products from about 56 percent to about 79 percent.

By 1996 Siderar was considered attractive enough to investors to go public, selling $78 million worth of shares (12 percent of its capital) on the Bolsa de Comercio de Buenos Aires and through private placement of American depositary shares to U.S. and European institutional investors. The company's sales rose from $669.2 million in 1993 to $1.01 billion in 1997, when its net profit reached $90.9 million. Productivity almost tripled during this period, costs per ton fell by 28 percent, and operating profit margin more than doubled.

Key Dates:

1947:: Sociedad Mixta Siderurgia Argentina (Somisa), a military-run enterprise, is founded.
1960:: Somisa establishes a steel plant near San Nicolas, Buenos Aires.
1974:: The Somisa plant has capacity to produce 2.5 million metric tons of steel a year.
1975:: Somisa ranks fifth in revenue among Argentine enterprises.
1985:: Somisa drops to 16th place among Argentine companies.
1991:: Seeking to cut its losses, Somisa reduces employment by one-half.
1992:: The company is sold to private sector investors for $163.6 million.
1993:: The company merges with a smaller steel producer to form Siderar.
1996:: Restored to profitability, Siderar sells shares to Argentine and foreign investors.
1998:: Siderar takes a stake in Sidor, Venezuela's steelmaking giant.
2003:: Siderar remains profitable after peso devaluation but restructures its debt.

Siderar turned out some two million tons of steel products in 1997, with 80 percent destined for the then-booming domestic market, which basically consisted of small and medium-sized businesses. There were seven programs oriented toward these clients, including one that audited the industrial engineering of these enterprises and offered plans to correct detected flaws in these operations. Another program, available over the Internet, included market analysis and software for managers. In addition, in that year, Siderar paid $60 million for Comesi San Luis S.A.I.C., a company that galvanized and painted metal sheets. A Siderar executive said that in less than six months Comesi's production rose 43 percent although staffing was cut by one-third.

Siderar, through its Prosid Investments S.C.A. subsidiary, took, in 1998, a 17.5 percent stake in Consorcio Siderurgica Amazonia Ltd., which had acquired 70 percent of Siderurgica del Orinoco C.A. (Sidor) from the Venezuelan government. Sidor was Venezuela's biggest steel producer. By the end of 2003, Siderar had raised its share of Sidor to 21.1 percent. Handicapped by political and economic turmoil in Venezuela, Sidor registered a $131 million loss for Siderar in 2002 but contributed $46 million in profits in 2003.

Siderar in the New Century

As the Argentine economy fell into recession, Siderar compensated for reduced domestic demand by increasing its exports from 340,000 metric tons in 1998 to one million in 1999. By late 2000 it had delayed for two years a planned three-year investment program of $1 billion. When the economy collapsed under the weight of heavy debt toward the end of 2001, Siderar continued to operate at 90 percent of its installed capacity of 2.3 million metric tons of raw steel per year, but exports now came to 60 percent of production. As the domestic economy recovered, exports fell to 45 percent of the total in 2003. The company lost money in 1999 and 2001 but then regained profitability.

Siderar's furnaces produced 2.41 million metric tons of raw steel in 2003. Its continuous casters turned out 2.54 million tons of molten steel. Hot-rolled steel production came to 2.47 million tons, cold-rolled steel, 1.54 million tons, and coated steel, 739,000 tons. The latter included electrogalvanized and electrozinced steel, and electrolytic tinplate. The company's net sales came to ARS 2.73 billion ($925.42 million) and its net profit to ARS 422.22 million ($143.13 million). During 2003 Siderar restructured $473.6 million in debts, which had grown increasingly burdensome after the value of the peso fell 70 percent against the dollar at the end of 2001. Siderar's total debt at the end of 2003 was $781.9 million.

Siderar was the dominant supplier for the high-quality and high-performance products used in the auto industry and of tin-plated steel for canning by the food industry and of coated steel products to meet the demands of the construction and electric home-appliance industries. All seven of its plants were in the province of Buenos Aires. The main Ramallo plant produced pig iron in its blast furnace from iron ore, coal, limestone, and coke. The pig iron was then purified into raw steel in basic oxygen furnaces. Casting produced slabs that were reheated into hot-rolled coils, which were sometimes cut into sheet steel. Alternatively, hot coils were sent to a cold-rolling mill. There was a second plant in the Ramallo complex for chromium coating.

The former Propulsora plant, in Ensenada, produced cold-rolled coils and plates and electrogalvanized hot-dipped galvanized and coated sheets. At Florencia Varela, two former Aceros Revestidos plants electrogalvanized sheets and coils and color-coated the sheets. Haedo was a specialized galvanizing plant for coated sheets. At the acquired Comesi canning plant at Estaban Echeverria, cold-rolled sheets and coils coated with tin underwent electrolytic cleaning and other steps to produce tin plate.

Agostino Rocca had died in 1978 and had been succeeded as president of Organizacion Techint by his son Roberto, who retired in 1993 and was succeeded by his son Agostino. He died in an aviation accident in 2001 and was succeeded at the head of Techint and as president of Siderar by his brother Paolo.

Organizacion Techint's Sidertubes S.A. unit owned 50.7 percent of Siderar's common stock in 2003. Inversora Siderurgica held 10.76 percent, Brazil's Usinas Siderurgicas de Minas Gerais S.A., 5.32 percent, and Iterbira, 4.85 percent. Employees held 10 percent of the enterprise, and company shares also traded on the Bolsa de Comercio de Buenos Aires.