ArcelorMittal to consider downstream options for Brazil steel slabmaker CSP: CEO

Steel major ArcelorMittal will consider downstream options for Companhia Siderúrgica do Pecém (CSP), the 3 million mt/year Brazilian steel slabmaker it plans to purchase for $2.2 billion, ArcelorMittal CEO Aditya Mittal told analysts July 28.

"We have lots of downstream options, on flats and on longs," Mittal said on a call to discuss the company's Q2 results. Acquisition of the mill in Ceara state, northeast Brazil "fits very nicely into our Brazil strategy and our slabs strategy. Either the Tubarao or CSP mill will have to go downstream. ... Brazil could be ready for further development."

The Tubarao steelworks in Brazil's southeastern Espirito Santo state was originally a producer of merchant slab -- a steel semi-finished product which needs to be rolled into a higher-valued finished flat product. It later moved into hot strip steel production and became part of the ArcelorMittal group in 2006.

ArcelorMittal's intended purchase of CSP follows plans by Brazilian miner Vale to sell its stake in CSP, a joint venture between Vale (50%) and South Korean steel producers Dongkuk (30%) and Posco (20%).

Dongkuk and Posco are also selling their stakes in the steel slabmaker to ArcelorMittal.

The addition of CSP will boost ArcelorMittal's production capacity in Brazil by 22.6% to 16.3 million mt/year.

CSP offers future expansion as a second steel shop is potentially ready at the site, bringing its total production capacity to 6 million mt/year of crude steel, ArcelorMittal said.

One option would be to convert the second steel shop to add 3 million mt/year of low carbon steel manufacturing via a direct reduced iron (DRI) and electric arc furnace route, it said.

The CSP purchase still needs to be approved by the Brazilian regulatory authorities, expected by the end of this year, ArcelorMittal said in a statement. CSP is located in a low-tax Brazilian development zone, 10 kilometers from the deepwater Pecem port.

Group short on slabs

For the near future, until a downstream option is decided, it is foreseen CSP will help fill ArcelorMittal group's expected shortfall on steel slabs due to its downstream development in Mexico, where the slabmaking ArcelorMittal Mexico (Lazaro Cardenas) mill is now ramping up a 2.5 million mt/year hot strip mill.

"The Mexico investment will eat up all the slabs that Lazaro has," Mittal said on the call. "We will be slabs short. Brazil is short on slabs. ... As Mexico ramps up its HSM, CSP will supply to Calvert in North America, which will soon be short on slabs."

US steel producer Calvert, a joint venture between ArcelorMittal and Nippon Steel Corp, currently buys 5 million mt/year of slabs mainly from ArcelorMittal Mexico and Tubarao, and that level of supply will no longer be available when the Mexican hot strip mill is fully ramped up, Mittal said.

"We also buy slabs in Europe," Mittal added.

Brazil slab prices fell $30 in the week of July 22, as sellers accepted lower coming bids for September shipments, sources said.

The Platts weekly Brazilian steel slab price was assessed at $660/mt FOB Brazilian ports, based on a range of $650-$670/mt FOB, according to S&P Global Commodity Insights. A sell-side source, however, noted demand was "far better" than for August shipments.

'Green' acquisitions

The planned CSP acquisition is one of two targeted "green" purchases by ArcelorMittal, as part of its drive to become a world leader in steel decarbonization, Mittal said on the call. Energy-wise, Ceara state has "fantastic potential" due to current "massive" investments there in renewable energy, and plans for a green hydrogen production hub, Mittal said.

Alan Spence, equity analyst with Jefferies International, nonetheless said in a note that: "the Brazilian state of Ceará is investing heavily in renewables and green hydrogen, though difficult at this point to estimate the financial benefits of this to ArcelorMittal."

"Commercially, Brazil remains short slab and the plant's port access also would give ArcelorMittal the flexibility to export slab to its European or Calvert (US) facilities," Spence said.

The other "green" acquisition, completed early July, was of an 80% stake in Texas HBI, a hot-briquetted iron plant in which Austrian steelmaker voestalpine retains the other 20%. The 2 million mt/year HBI plant has now achieved its design-rated capacity, according to Mittal.

HBI is a transportable form of DRI. It is a low-carbon, high-purity iron input that may be used in EAFs, which produce far lower CO2 emissions in steelmaking than the traditional blast furnace. It can also be used in blast furnaces, helping reduce the coal charge.

ArcelorMittal in September 2020 announced a group-wide commitment to being carbon neutral by 2050, building on a commitment made in 2019 for its European business to reduce emissions by 30% by 2030, and be carbon neutral by 2050.