Russian Investor Postpone Brazil Steel-Mill Project

Brazil's biggest pig-iron producer, Cosipar Group, said it postponed plans for a new steelworks project--Usina Siderurgica do Para--in north Brazil with a Russian partner due to market conditions.

The project, for a steel slabs mill and coking coal plant in Barcarena, Para state, will be reviewed again in early 2012, Cosipar's executive director Claudio Monteiro told Dow Jones Newswires.

The decision to postpone the mill project was taken this week in Moscow by Cosipar and representatives of its partner in its Barcarena subsidiary Usipar, Russian magnate Igor Zyuzin. Zyuzin is also the controller of OAO Mechel, Russia's biggest coal company, of which he owns about 70%.

"We came to the consensus that due to current market conditions in the global steel sector, it was more prudent to continue developing some projects internally and to talk about [the steel project] again in early 2012," Monteiro said.

Cosipar is currently producing around 600,000 tons a year of pig iron, a raw material for steelmaking in north Brazil, well under its total pig-iron production capacity of nearly one million metric tons a year. Around half the total capacity is run by Usina Siderurgica do Para, or Usipar, which currently operates only as a pig-iron producer.

The capacity of the projected steel mill wasn't revealed.

Analysts have said that steelmaking in Brazil is now a far less profitable business than it was in the past because of the skyrocketing costs of iron ore and coking coal, the two main steelmaking raw materials, coupled with the country's strong currency. Raw materials costs have soared on Chinese demand.

Brazil's steel industry is "almost at crisis point," Marcos Assumpcao, head of natural-resources equity research at Itau BBA, said at an industry event late June. "In early 2008, Brazilian steelmakers' EBITDA margin levels were above 40%: they're close to 10% now."

Zyuzin acquired 75% of Usipar around two years ago as he was interested in diversifying into Brazilian steel and setting up Usipar's planned steel mill, according to an informed source close to the project. The Russian magnate also owns a U.K. steelmaker, MIR Steel, which produces 40,000 tons a month of rolled steel.

The Brazilian Monteiro family owns the other 25% of Usipar.

According to Monteiro, lack of adequate port facilities to serve export markets is another potential drawback to the Usipar steel mill project.

According to Monteiro, lack of adequate port facilities to serve export markets is another potential drawback to the Usipar steel mill project.

"We need to build ports. The situation regarding Brazilian ports is really critical," Monteiro said.

Brazil's federal ports secretariat is due July 20 to invite bids from the private sector for the development of Vila do Conde, an inland port near Barcarena.

Miner Vale SA (VALE, VALE5.BR), aluminum producer Albras and alumina producers Alunorte and Companhia Alumina do Para are all interested in bidding to construct terminals at Vila do Conde to export steel products, bauxite, alumina and agricultural products, according to Mario Lima Junior, deputy minister at the ports secretariat.  "We need to build ports. The situation regarding Brazilian ports is really critical," Monteiro said.

Brazil's federal ports secretariat is due July 20 to invite bids from the private sector for the development of Vila do Conde, an inland port near Barcarena.

Miner Vale SA (VALE, VALE5.BR), aluminum producer Albras and alumina producers Alunorte and Companhia Alumina do Para are all interested in bidding to construct terminals at Vila do Conde to export steel products, bauxite, alumina and agricultural products, according to Mario Lima Junior, deputy minister at the ports secretariat.