Companhia Siderurgica Nacional ADR Earnings Call Insights: Details on Mining and 2013 Investment Outlook

Companhia Siderurgica Nacional ADR (NYSE:SID) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Details on Mining

Unidentified Analyst – Barclays: My first question is about mining. If you could tell about the beginning of the first quarter qualitatively and quantitatively that would be great and if you could help us looking forward what can we expect in terms of CSN’s own iron ore production, in what volume the other company will contribute with? My second question, you have strong results compared to better than what we expected from your peers, if you could tell us a little bit about the market, how it’s been in the beginning of the year, if you could give us the detailed information about the prices that would be great.

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Daniel dos Santos – Mining Director: We expect to have a volume very similar to guidance in 2011. In other words, excluding 29 million tons around that in maintaining the usual transfers of the normally household PV. And as for the first months of 2013 in the first quarter shipments were little bit below expected. Particular because we had a problem in finish Casa de Pedra plant in regard operating issue that we have at Casa de Pedra mine we will focus slightly or we think in the first quarter. Then mining is certainly because we have adopted some mitigating measures to replace that capacity adding machines in the mine and having additional equipment (indiscernible) shipment. And as you know most of the local demand for iron ore did not materialize and the supply on the other hand increased quite a lot because the supply of product services they are not materialized and that’s now a case as we have said when we were able to include the second car dumper and we have therefore an additional capacity starting as of the next week we are in the phase of making some adjustments to reach full production in car dumper. And the part which was an important bottleneck, and this is now I think is no longer a bottleneck and at a good timing as well because our competitors were not able to have their additional capacity of services that they were expecting for that. The supply of ore locally is quite favorable from and we are able to close good contract with good trend so that we can offset part of the losses that we are sustaining with an operating problem that we had in capacity et cetera with the purchase of ore and the additional capacity that we were able to install at the plant. So, the signs are beginning to appear a little bit difficult because that machine broke down and showed a structural problem. We were able to offset it with some in-house mitigating factors adding the structures in the mine and in treating the plant and then also with a higher supply that we have now given that our competitors were not able to deliver, because of those issues. We have supply with stimulating demand and giving us good conditions with the acquisition of ore. So, we expect to close if they get very similar to what we had in 2011…

Luis Fernando Barbosa Martinez – Steel Commercial Officer: Renato, good morning. This is Martinez. We’re trying to tell you to a little bit about the five points that I always mention. I’ll talk a little bit about supply, demand, (end points) which is also very important for 2013, costs which I believe a little less relevant at this point, exchange rate and the competitiveness of the production change where CSN operates. Very well, let’s talk about the economy. Let me give you an interesting piece of data. Although the GDP was slow, 0.9%, this is well known, but still it’s worth highlighting that the industrial GDP was negative 0.8% and in the transformation industry where CSN serves, the processing segment that GDP was higher. The 2012 was the year which was relatively difficult for the processing industry. We expect a much better outlook for 2013. CSN is working with the GDP growth for the processing industry of 3.2% for 2013. As for supply and demand, the average consumption of flat steel in 2012 was about 14 million tonnes per year and long steel about 11 million tonnes. It is really worth mentioning in terms of flat that the 14 million tonnes of apparent consumption, in fact, really 2.3 million, 2.4 million are related to imports. I am planning that in 2013 (indiscernible) reach 1 million as we will be around 800,000, which means that approximately all the current volume will go back to supply local clients, local (north) which is very healthy for our market. As for the industries and its interest information very quickly, civil construction, growth was limited, but grew about 2% than 2011. Our outlook for 2013 is that this industry will continue to grow the same at length. Given that household are consuming more both for long steel and for construction, we need to unlock some infrastructure projects that are in the pipeline. For that we’re planning – we’re expecting a 3.5% growth in civil construction and some consumption of materials and here I quote cement, something around 4% to 5% growth. And since I’m talking about civil construction, cement in 2013 is expected to reach 74 million tonnes in the year in CSN. We’ve been investing more and more in (indiscernible) I’m going to tell you what we’re investing in the cement. As for white line, 2012 growth was around 15%. And at least in the first quarter I don’t see anything different. We are working with the same prospect we had in 2012 for the automotive industry. There was some doubt, which was felt basically this year. IPI reduction continued for cars, number of cars licensed about 12 million cars a day, should remain at least at this level. I must remind you that when the industry was at its rough bottom, this was down to 8 million. So in those two segments the consumer still white line and automotive industry I don’t see major issues expected for 2013, so we should see a positive trend there. An important (nugget) is that in the packaging industry we are seeing the same supply (scene played). More and more Brazilians just like that stuff and they end up buying cans, so cans should take more space in the packaging mix of our customers, and we can see that improving in distribution and important piece of (indiscernible). The channel is very competitive and inventories are quite controlled, so the outlook for distribution is quite positive for 2013. As for costs, I don’t think there is anything relevant to mention. I think the costs are relatively under control, so we are going to talk about the price of all in a little while and about the price of other raw materials. As for the premium of imported material, nationalized compared to domestic market. As we mentioned at (EQ) with a trending point of $610 that will be per tonne the premium compared to the domestic market is 1% to 3%; for cold-rolled products 3% to 6%; in galvanized about 5%; and tin plates about 10% to 11%. So, in terms of the import equation, there is no reason to think that we should have a significant import during this year of 2013. Basically, this is the outlook that we are working with for 2013. It is quite positive. CSN had a price recovery in the first quarter of about 5% and part of that price realignment and the plant reduction should probably be seen in the first quarter earnings results. We are looking at the second quarter with a lot of optimism, and along the year we mentioned that we might have some price recovery coming out there. As for the guidance of 2013, which is (guide at present), we are working with 6.2 million tonnes for 2013; 4.9 million tonnes of this for the domestic market, and practically 200,000 tonnes (galvanized) tin plates for Latin America, 800,000 for our unit in Germany, and for LLC and the U.S. and (indiscernible) 500,000 tonnes. That leaves vis-a-vis 2012 6.2 million tonnes down to 5.8 million tonnes. So, that basically is international market remains with relatively fine finances with liquid margin to a reduction from those working very close to the top line. Well basically those were my announcements. Thank you. I would like to remind you that due to the large number of participants, the Company will only answer up to two questions per participant with no right to reply, ask the question as soon as your line is released by the operator.

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2013 Investment Outlook

Leandro Cappa – Deutsche Bank: First question, how much do you intend to invest in 2013? What is the life cycle? A little bit about iron ore pricing, what is the mix and the spot and contract price, as the strong recovery in the fourth quarter were a surprise to the market? So I would like to have a better understanding of these two points?

David Moise Salama – IR: Well Geraldo our Commercial Officer for Mining will be answering the second question first and then I will be answering your question about investment in fuel.

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Geraldo da Silva Maia – Commercial Mining Director: Good morning, the size of ore since the second half of last year has been growing very dramatically. We had a peak of $160 in March this year. Ever since then the price is around $140 per tonne and the price level is way above the market expectations at the end of last year, with already recovered prices between quarter three and four and the full first quarter of this year we expect to have an additional increase in prices due to the follow-up of these indexes. Another important variable when it comes to price is freight. Freight has very low historic levels. We have been performing many sales in the modality cost of freight and we can absorb products at resilient margin, benefiting from higher prices. For 2013, we expect prices to be above 2012. We believe they will be exceeding last year’s result. As a result, our inventories are very low. We’ve been following this very closely and we believe (indiscernible) per tonne in the beginning of this year, these levels will be back to the inventory as we need ore to maintain our operations. Answering your first question, related to our CapEx for Steel. Just to give an idea, we expect for this year investment amounting to R$400 million in terms of current CapEx for Steel and one of the project we have in mind is to rebuild our Coke Battery. You know that CSN today is self-sufficient about 65% in coke production from third party purchase, and obviously we’re going to maintain and over time we also want to expand this number. This is in our agenda for 2013, and also for 2014.