Company Quick10K Filing
National Steel
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20-F 2010-12-31 Filed 2011-06-20
20-F 2009-12-31 Filed 2010-06-01

SID 20F Annual Report

Item 17 1 Item 18 1
Part I
Item 1. Identity of Directors, Senior Management and Advisors
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modification To The Rights of Security Holders and Use of Proceeds
Part II
Item 15. Controls and Procedures
Item 16. [Reserved]
Item 17. Financial Statements
Part III
Item 18. Financial Statements
Item 19. Exhibits
EX-1 exhibit11.htm
EX-8 exhibit81.htm
EX-12 exhibit121.htm
EX-12 exhibit122.htm
EX-13 exhibit131.htm
EX-13 exhibit132.htm
EX-15 exhibit151.htm

National Steel Earnings 2010-12-31

Balance SheetIncome StatementCash Flow

20-F 1 csnform20f2010.htm FORM 20F 2010 csnform20f2010.htm - Generated by SEC Publisher for SEC Filing

 

As filed with the Securities and Exchange Commission on June 17, 2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

1

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

R

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2010

 

OR

1

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

OR

1

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-14732

 

COMPANHIA SIDERÚRGICA NACIONAL
(Exact Name of Registrant as Specified in its Charter)

NATIONAL STEEL COMPANY
(Translation of Registrant’s name into English)

THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)

 

Paulo Penido Pinto Marques, Chief Financial Officer
Phone:  +55 11 3049-7100   Fax:  +55 11 3049-7212

invrel@csn.com.br
Av.  Brigadeiro Faria Lima, 3,400 – 20th floor
04538-132, São Paulo-SP, Brazil

(Address of principal executive offices)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

Name of each exchange on which registered

Common Shares without par value

New York Stock Exchange*

American Depositary Shares, (as evidenced by American Depositary Receipts), each representing one share of Common Stock

New York Stock Exchange

____________________

*  Not for trading purposes, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

 

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:

Common Shares, without par value.

1,483,033,685, including 25,063,577 common shares held in treasury.  This amount takes into account the cancellation of 27,325,535 common shares held in treasury in November 2010.  For further information, see “Item 7A.  Major Shareholders,”  “Item 9A.  Offer and Listing Details” and “Item 10B.  Memorandum and Articles of Association.”

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

R  Yes    1  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

1  Yes    R  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

R  Yes   1  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

R  Yes    1  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer  R                Accelerated Filer  1                 Non-accelerated Filer  

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP

International Financial Reporting Standards as issued by the International Accounting Standards Board

Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17  1   Item 18  1  

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

1  Yes     R  No

 


 

 

TABLE OF CONTENTS

 

Page

 
Introduction 1
Forward-Looking Statements 2
Presentation of Financial and Other Information 3
Item 1. Identity of Directors, Senior Management and Advisors 3
Item 2. Offer Statistics and Expected Timetable 3
Item 3. Key Information 3
3A. Selected Financial Data 3
3B. Capitalization and Indebtedness 7
3C. Reasons for the Offer and Use of Proceeds 7
3D. Risk Factors 7
Item 4. Information on the Company 15
4A. History and Development of the Company 15
4B. Business Overview 17
4C. Organizational Structure 49
4D. Property, Plant and Equipment 49
Item 4A. Unresolved Staff Comments 54
Item 5. Operating and Financial Review and Prospects 54
5A. Operating Results 55
5B. Liquidity and Capital Resources 72
5C. Research & Development and Innovation 76
5D. Trend Information 76
5E. Off-Balance Sheet Arrangements 78
5F. Tabular Disclosure of Contractual Obligations 81
5G. Safe Harbor 82
Item 6. Directors, Senior Management and Employees 82
6A. Directors and Senior Management 82
6B. Compensation 85
6C. Board Practices 85
6D. Employees 86
6E. Share Ownership 86
Item 7. Major Shareholders and Related Party Transactions 86
7A. Major Shareholders 86
7B. Related Party Transactions 87
Item 8. Financial Information 87
8A. Consolidated Statements and Other Financial Information 87
8B. Significant Changes 91
Item 9. The Offer and Listing 91
9A. Offer and Listing Details 91
9B. Plan of Distribution 92
9C. Markets 92
9D. Selling Shareholders 95
9E. Dilution 95
9F. Expenses of the Issue 95
Item 10. Additional Information 95
10A. Share Capital 95
10B. Memorandum and Articles of Association 95
10C. Material Contracts 98
10D. Exchange Controls 99
10E. Taxation 99
10F. Dividends and Paying Agents

108

10G. Statement by Experts 108
10H. Documents on Display 108

 

 

10I. Subsidiary Information 108
Item 11. Quantitative and Qualitative Disclosures About Market Risk 108
Item 12. Description of Securities Other Than Equity Securities 114
Item 13. Defaults, Dividend Arrearages and Delinquencies 114
Item 14. Material Modification to the Rights of Security Holders and Use of Proceeds 115
Item 15. Controls and Procedures 115
Item 16. [Reserved] 116
16A. Audit Committee Financial Expert 116
16B. Code of Ethics 116
16C. Principal Accountant Fees and Services 116
16D. Exemptions from the Listing Standards for Audit Committees 117
16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 117
16F. Change in Registrant’s Certifying Accountant 117
16G. Corporate Governance 117
Item 17. Financial Statements 119
Item 18. Financial Statements 119
Item 19. Exhibits 119

 


 

 

 

 

Introduction

Unless otherwise specified, all references in this annual report to:

·         “we,” “us,” “our” or “CSN” are to Companhia Siderúrgica Nacional and its consolidated subsidiaries;

·         “Brazilian government” are to the federal government of the Federative Republic of Brazil;

·         real,” “reais” or “R$” are to Brazilian reais, the official currency of Brazil;

·         “U.S. dollars,” “$,” “US$” or “USD” are to United States dollars;

·         “billions” are to thousands of millions, “km” are to kilometers, “m” are to meters, “mt” or “tons” are to metric tons, “mtpy” are to metric tons per year and “MW” are to megawatts;

·         “TEUs” to twenty-foot equivalent units;

·         “consolidated financial statements” are to the consolidated financial statements of Companhia Siderúrgica Nacional and its consolidated subsidiaries reported in International Financial Reporting Standards as issued by the IASB – IFRS as of December 31, 2009 and 2010 and for the years ended December 31, 2009 and 2010, together with the corresponding Report of Independent Registered Public Accounting Firm;

·           “ADSs” are to CSN’s American Depositary Shares and “ADRs” are to CSN’s American Depositary Receipts; and

·         “Brazil” is to the Federative Republic of Brazil.

1


 

 

 

 

Forward-Looking Statements

This annual report includes forward-looking statements, within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, principally under the captions “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” and “Item 11.  Quantitative and Qualitative Disclosures About Market Risk.”  We have based these forward-looking statements largely on our current expectations and projections about future events, industry and financial trends affecting our business.  Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:

·         general economic, political and business conditions in Brazil and abroad, especially in China;

·         the ongoing effects of the recent global financial markets and economic crisis;

·         changes in competitive conditions and in the general level of demand and supply for our products;

·         management’s expectations and estimates concerning our future financial performance and financing plans;

·         our level of debt;

·         availability and price of raw materials;

·         changes in international trade or international trade regulations;

·         protectionist measures imposed by Brazil and other countries;

·         our capital expenditure plans;

·         inflation, interest rate levels and fluctuations in foreign exchange rates;

·         our ability to develop and deliver our products on a timely basis;

·         lack of infrastructure in Brazil;

·         electricity and natural gas shortages and government responses to them;

·         existing and future governmental regulation; and

·         other risk factors as set forth under “Item 3D.  Risk Factors.”

The words “believe,” “may,” “will,” “aim,” “estimate,” “forecast,” “plan,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements.  Forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors.  In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not an indication of future performance.  As a result of various factors, such as those risks described in “Item 3D.  Risk Factors,” undue reliance should not be placed on these forward-looking statements.

 

2


 

 

 

 

 

Presentation of Financial and Other Information

Our consolidated financial statements as of December 31, 2010 and 2009 and for the years ended December 31, 2009 and 2010 contained in “Item 18.  Financial Statements” have been presented in thousands of reais (R$) and prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).  See Note 2(a) to our consolidated financial statements.

For certain purposes, such as providing reports to our Brazilian shareholders, filing financial statements with the Brazilian Securities Commission (Comissão de Valores Mobiliários), or CVM, and other distributions and tax liabilities in Brazil, we have prepared and will continue to be required to prepare financial statements in accordance with the accounting principles required by Brazilian laws No. 6,404, dated December 15, 1976, as amended, and No. 11,638 dated December 28, 2007, as amended, or the Brazilian Corporate Law, and the rules and regulations of the CVM, or Brazilian GAAP.

Changes on Regulatory Requirements for Presentation of Financial Statements – Convergence to International Financial Reporting Standards (“IFRS”)  

Starting with the year ended December 31, 2010, Brazilian listed companies are required to publish their consolidated financial statements in accordance with IFRS.  Those consolidated financial statements must be prepared based on IFRS as issued by the IASB.

Consequently, the financial statements and other financial information for the years ended December 31, 2010 and 2009 included elsewhere in this Form 20-F, unless otherwise indicated, were prepared and presented in accordance with IFRS.

Previously published consolidated financial statements in our annual report on Form 20-F for our financial year ended December 31, 2009, as well as all prior financial periods, were prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). IFRS differs in certain material respects from U.S. GAAP and, accordingly, the consolidated financial statements for our financial years ended December 31, 2010 and 2009 prepared in accordance with IFRS are not comparable to our consolidated financial statements prepared in accordance with U.S. GAAP for 2009 and prior years presented in our reports on Form 20-F.  See “Item 5. Operating and Financial Review and Prospects—Change in Accounting from U.S. GAAP to IFRS” and Note 4 to our consolidated financial statements included elsewhere in this Form 20-F.

Certain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

3A.  Selected Financial Data

We present in this section the summary financial and operating data derived from our audited consolidated financial statements as of and for the year ended December 31, 2009 and 2010.

The consolidated financial statements included in this annual report have been prepared in accordance with IFRS, as issued by the IASB, in reais. However, we have translated some of the real  amounts contained in this annual report into U.S. dollars.  The rate used to translate such amounts in respect of the year ended December 31,  


 

 

2010 was R$1.6662 to US$1.00, which was the commercial rate for the purchase of U.S. dollars in effect as of December 31, 2010, as reported by the Central Bank. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the real  amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate.  See “Exchange Rates” for more detailed information regarding the translation of reais  into U.S. dollars.

IFRS Summary and Financial Data

The following tables present summary historical consolidated financial and operating data for us for each of the periods indicated.  Solely for the convenience of the reader, real  amounts as of and for the year ended December 31, 2010 have been translated into U.S. dollars at the commercial market rate in effect as of December 31, 2010 as reported by the Brazilian Central Bank of R$1.6662 to US$1.00 The selected financial data below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects.”    

 

 

 

   

Year Ended December 31,

Statement of income data:  

 

2010

 

2010

 

2009

 

 

(in million of US$, except per share data)

 

(in million of R$, except per share data)

Net operating revenues

 

                                    8,673

 

                                  14,451

 

                                  10,978

         Cost of products sold

 

                                  (4,613)

 

                                  (7,687)

 

                                  (7,022)

Gross Profit

 

                                    4,060

 

                                    6,764

 

                                    3,956

Operating expenses

 

                                          -  

 

 

 

 

         Selling 

 

                                     (407)

 

(678)

 

                                     (636)

         General and Administrative 

 

                                     (322)

 

(537)

 

(480)

        Equity in results of affiliated companies

 

0

 

0

 

0

        Other Expenses

 

                                     (386)

 

(643)

 

(696)

        Other  Income

 

                                         55

 

92

 

1,417

         Total  

 

(1,060)

 

(1,766)

 

(395)

 

 

 

 

 

 

 

Operating income  

 

                                    3,000

 

                                    4,998

 

                                    3,561

Non-operating income (expenses), net  

 

 

 

 

 

 

         Financial Income (expenses), net

 

                                  (1,147)

 

                                  (1,911)

 

                                     (246)

 

 

 

 

 

 

 

 

 

 

 

 

Income Before Taxes

 

                                    1,853

 

                                    3,087

 

                                    3,315

Income Tax

 

 

 

 

 

 

         Current 

 

                                     (188) 

 

                                     (313)

 

                                     (582)

         Deferred 

 

                                     (154)

 

                                     (257)

 

                                     (118) 

 

 

 

 

 

 

 

                  Total  

 

                                    1,511

 

                                    2,517

 

                                    2,615

 

 

 

 

 

 

 

Net income  

 

                                    1,511

 

                                    2,517

 

                                    2,615

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interest

 

-    

 

-  

 

                                         (4)

 

 

 

 

 

 

 

Net income attributable to Companhia Siderúrgica Nacional

 

                                    1,511  

 

                                    2,517

 

                                    2,619

 

 

 

 

 

 

 

Basic earnings per common share

 

1.03586

 

1.72594

 

1.75478

Diluted earnings per common share

 

1.03586

 

1.72594

 

1.75478

 

 

 

 

 

 

 

4 


 

 

 

 

 

As of December 31, 

Balance Sheet Data:

 

2010

 

2010

 

2009

 

 

(in million of US$)

 

(in million of R$)

Current assets 

 

  9,479

 

  15,794

 

12,835

Investments

 

  1,263

 

  2,104

 

  322

Property, plant and equipment

 

  8,269

 

  13,777

 

11,133

Other assets 

 

 3,676  

 

  6,126

 

6,436

 

 

 

 

 

 

 

Total assets

 

  22,687

 

  37,801

 

30,726

 

 

 

 

 

 

 

Current liabilities 

 

  2,674

 

  4,456

 

3,998

Non -current liabilities(1)

 

  15,317

 

  25,522

 

   20,139  

Stockholders’ equity 

 

  4,696

 

  7,823

 

6,589

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

  22,687  

 

37.801

 

30,726

 

 

 

 

Common stock 

 

2,447

 

2,447

 

2,447

Dividends declared and interest on stockholders’ equity (in millions of reais)(1)

 

  937

 

   1,561  

 

2,571

Dividends declared and interest on stockholders’ equity per common share (in reais)(1)

 

0.64

 

1.07

 

1.76

(1) 

Amounts consist of dividends declared and accrued interest on stockholders’ equity during the year.  For a discussion of our dividend policy and dividend and interest payments made in 2010, see “Item 8A.  Consolidated Statements and Other Financial Information-Dividend Policy.” 

 

5

 


 

Exchange Rates

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.  The Brazilian currency has during the last decades experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies.

Between 2000 and 2002, the real  depreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per US$1.00 at the end of 2002.  Between 2003 and mid-2008, the real  appreciated significantly against the U.S. dollar due to the stabilization of the macroeconomic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per US$1.00 in August 2008.  In the context of the crisis in the global financial markets after mid-2008, the real depreciated 31.9% against the U.S. dollar over the year 2008, reaching R$2.34 per US$1.00 on December 31, 2008.  Since 2009, the real  appreciated against the U.S. dollar and on December 31, 2010 the exchange rate was R$1.67 per US$1.00 and on June 14, 2011, the exchange rate was 1.58 per US$1.00.  The Central Bank has intervened occasionally to control instability in foreign exchange rates.  We cannot predict whether the Central Bank or the Brazilian government will continue to allow the real  to float freely or will intervene in the exchange rate market through a currency band system or otherwise.  The real  may depreciate or appreciate against the U.S. dollar substantially.

The following tables present the selling rate, expressed in reais  per U.S. dollar (R$/US$), for the periods indicated.

 

 

 

 

 

 

 

 

 

 

 

 

Low  

 

High  

 

Average (1)

 

Period-end  

Year ended  

 

 

 

 

 

 

 

 

December 31, 2006 

 

2.059 

 

2.371 

 

2.177 

 

2.138 

December 31, 2007 

 

1.733 

 

2.156 

 

1.948 

 

1.771 

December 31, 2008 

 

1.559 

 

2.500 

 

1.837 

 

2.337 

December 31, 2009

 

1.702 

 

2.422 

 

1.994 

 

1.741 

December 31, 2010

 

1.655 

 

1.881 

 

1.759 

 

1.666 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Low  

 

High  

 

   Average  

 

Period-end  

 

 

 

 

 

 

 

 

 

Month ended  

 

 

 

 

 

 

 

 

December 2010

 

1.655 

 

1.881 

 

1.759 

 

1.666

January 2011

 

1.651 

 

1.691 

 

1.674 

 

1.673 

February 2011

 

1.661 

 

1.677 

 

1.668 

 

1.661 

March 2011

 

1.628 

 

1.675 

 

1.659 

 

1.629 

April 2011

 

1.565 

 

1.619 

 

1.586

 

1.573 

May 2011

 

1.580

 

1.634

 

1.613

 

1.580

June 2011 (through June 14, 2011)

 

1.574

 

1.594

 

1.583

 

1.582

 

Source: Central Bank. 

(1) Represents the daily average of the close exchange rates during the period.  

 

6 

 

 

We will pay any cash dividends and make any other cash distributions with respect to our common shares in Brazilian currency.  Accordingly, exchange rate fluctuations may affect the U.S. dollar amounts received by the holders of ADSs on conversion by the depositary of such distributions into U.S. dollars for payment to holders of ADSs.  Fluctuations in the exchange rate between the real  and the U.S. dollar may also affect the U.S. dollar equivalent of the real  price of our common shares on the BM&FBOVESPA.

3B.  Capitalization and Indebtedness

Not applicable.

3C.  Reasons for the Offer and Use of Proceeds

Not applicable.

3D.  Risk Factors

An investment in our ADSs or common shares involves a high degree of risk.  You should carefully consider the risks described below before making an investment decision.  Our business, financial condition and results of operations could be materially and adversely affected by any of these risks.  The trading price of our ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment.  The risks described below are those that we currently believe may materially affect us.

Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy.  This involvement, as well as, Brazilian political and economic conditions, could adversely affect our business and the trading prices of our ADSs and common shares.

The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policy and regulation.  The Brazilian government’s actions, policies and regulations to control inflation have often involved, among other measures, increases in interest rates, changes in tax policies, price controls (such as those imposed on the steel sector prior to privatization), currency devaluations, capital controls and limits on imports.  Our business, financial condition and results of operations may be adversely affected by political, social, and economic developments in or affecting Brazil, and by changes in policy or regulations involving or affecting factors, such as:

·         interest rates;

·         exchange controls;

·         currency fluctuations;

·         inflation; 

·         lack of infrastructure in Brazil;

·         energy shortages and rationing programs;

·         liquidity of the domestic capital and lending markets;

·         environmental policies and regulations;

·         tax policies and regulations; and

·         other political, social and economic developments in or affecting Brazil.

Uncertainty over whether the Brazilian government will make changes affecting these and other factors may create instability. This may also adversely affect our business, financial condition and results of operations.

 

7 


 

Exchange rate instability may adversely affect our financial condition,  results of operations and the market price of our common shares and ADSs.

The Brazilian currency has long experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies.  Between 2000 and 2002, the real  depreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per US$1.00 at the end of 2002.  Between 2003 and mid-2008, the real  appreciated significantly against the U.S. dollar due to the stabilization of the macroeconomic environment and a strong increase in foreign investment in Brazil, with the exchange rate reaching R$1.56 per US$1.00 in August 2008.  In the context of the crisis in the global financial markets after mid-2008, the real  depreciated 31.9% against the U.S. dollar over the year 2008 and reached R$2.34 per US$1.00 at year end.  Since 2009, the real appreciated  againts the U.S. dollar, mainly due to the strong economic recovery of Brazil and high domestic real interest rate, and on December 31, 2010 the exchange rate was R$1.66 per US$1.00.  On June 14, 2011, the exchange rate was R$1.58 per US$1.00.

Depreciation of the real  against major foreign currencies could create inflationary pressures in Brazil and contribute to Central Bank increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations, may curtail access to foreign financial markets and may prompt government intervention, including recessionary governmental policies.  Depreciation of the real  against the U.S. dollar can also, as in the context of the global economic and financial crisis in 2008 and 2009, lead to decreased consumer spending and reduced growth of the economy as a whole.

On the other hand, appreciation of the real  relative to major foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth.  Depending on the circumstances, either depreciation or appreciation of the real  could materially and adversely affect the growth of the Brazilian economy and our business, financial condition and results of operations.

In the event the real  depreciates in relation to the U.S. dollar, the cost in reais  of our foreign currency-denominated borrowings and imports of raw materials, particularly coal and coke, will increase.  To the extent that we do not succeed in promptly reinvesting the funds received from such borrowings in dollar-denominated assets, we are exposed to a mismatch between our foreign currency-denominated expenses and revenues.  On the other hand, if the real appreciates in relation to the U.S. dollar, it will cause real-denominated production costs to increase as a percentage of total production costs and cause our exports to be less competitive.  We had total U.S. dollar-denominated or –linked indebtedness of US$5,804 million, or 48% of our total indebtedness, at December 31, 2010. 

Depreciation of the real  may also reduce the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of our common shares and, as a result, the ADSs.

Government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm our business.

Brazil has in the past experienced extremely high rates of inflation and has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world.  Since the implementation of the Real Plan in 1994, the annual rate of inflation in Brazil has decreased significantly, as measured by the National Broad Consumer Index (Índice Nacional de Preços ao Consumidor Amplo, or IPCA). Inflation measured by the IPCA index was 4.31 and 5.91 in 2009 and 2010, respectively.

Between 2004 and 2010, the base interest rate, or SELIC rate, in Brazil varied between 19.25% p.a. and 8.75% p.a.. Inflation and the Brazilian government’s measures to fight it, principally through the Central Bank, have had and may have significant effects on the Brazilian economy and our business.  Tight monetary policies with high interest rates may restrict Brazil’s growth and the availability of credit.  Conversely, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect our business.  In addition, we may not be able to adjust the price of our products in the export markets to offset the effects of inflation in Brazil on our cost structure, given that most of our costs are incurred in reais

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Developments and perception of risk in other countries, especially in the United States, China and other emerging market countries, may adversely affect the trading price of Brazilian securities, including our common shares and ADSs.

The market value of securities of Brazilian companies is affected to varying degrees by economic and market conditions in other countries, including the United States, China, other Latin American and emerging market countries.  Although economic conditions in these countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers.  Crisis in other emerging market countries or economic policies of other countries may diminish investor interest in securities of Brazilian issuers, including ours.  This could adversely affect the trading price of our common shares and/or ADSs, and could also make it more difficult or impossible for us to access the capital markets and finance our operations in the future, on acceptable terms.

Risks Relating to Us and the Industries in Which We Operate

We are exposed to substantial changes in the demand for steel and iron ore, which has a substantial impact in the prices for our products.

The steel and mining industries are highly cyclical, both in Brazil and abroad.  To the extent the Brazilian economy cannot absorb our entire steel production capacity, we are dependent on exporting our steel products, as in 2005 and 2006, for example.  The demand for our steel and mining products (international commodities) and, thus, the financial condition and results of operations of companies in the steel and mining industries, including us, are generally affected by macroeconomic fluctuations in the world economy and the economies of steel-producing countries, including trends in the automotive, construction, home appliances, packaging and distribution industries.  In recent years, the price of steel and iron ore in world markets has been at historically high levels, with the exception of 2009, when these prices decreased as a result of lower domestic and international demand and the effects of the 2008 worldwide financial crisis, but with consistent recovery over 2010 due to product mix and recovery of international economy and prices.  Reduced demand can lead to overcapacity and excessive downtime, lower utilization of our significant fixed assets and therefore reduced operating profitability. Any material decrease in demand for steel and iron ore in the domestic or export markets served by us could have a material adverse effect.

The availability and the price of raw materials that we need to produce steel, particularly coal and coke, may adversely affect our results of operations.

In 2010 and 2009, raw material costs accounted for 56.4% and 53.6% , respectively, of total production costs.  Our principal raw materials include iron ore, coal, coke (a portion of which we produce from coal), limestone, dolomite, manganese, zinc, tin and aluminum.  We depend on third parties for some of our raw material requirements.  In addition, we import all of the coal required to produce coke and approximately 28% of our coke requirements.

Global developments, for example the dramatic increase in 2008 in Chinese and Indian demand for raw materials used in steel manufacturing, may cause severe shortages and/or substantial price increases in key raw materials and ocean transportation capacity.  Our inability to pass those cost increases on to our customers or to meet our customers’ demands because of non-availability of key raw materials may cause a material adverse effect on us.

In addition, we require significant amounts of energy, both in the form of natural gas ad electricity, to power our plant and equipment.  Any prolonged interruption in the supply of raw materials, natural gas or energy, or substantial increases in their costs, could also materially and adversely affect us.  These interruptions in the supply of raw materials, natural gas or energy may be a result of changes in laws or trade regulations, the availability and cost of transportation, suppliers’ allocations to other purchasers, interruptions in production by suppliers or accidents or similar events on suppliers’ premises or along the supply chain.

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We face significant competition, including price competition and competition from other domestic or foreign producers, which may adversely affect our profitability and market share.

The global steel industry is highly competitive with respect to price.  Brazil exports steel products and is influenced by several factors:  the protectionist policies of other countries, questioning of WTO (World Trade Organization), the Brazilian government’s exchange rate policy and the growth rate of world economy.  Further, continuous advances in materials sciences and resulting technologies have given rise to improvements in products such as plastics, aluminum, ceramics and glass that permit them to substitute steel.  Due to high start-up costs, the economics of operating a steelworks facility on a continuous basis may encourage mill operators to maintain high levels of output, even in times of low demand, which increases the pressure on industry profit margins.  In addition, downward pressure on steel prices by our competitors may affect our profitability.

The steel industry is also highly competitive with respect to product quality and customer service, as well as technological advances that enable the steel manufacturer to reduce its production costs.  In 2010 the steel companies in Brazil have faced strong competition of imported products. Some of the factors that facilitated this scenario were the reduction of steel products demand in mature markets, the exchange rate appreciation and some state tax incentives.  The necessary measures were taken to contain imported products and domestic and imported prices were equated.

Over the past years, China has become a major steel producer. If we are not able to remain competitive in relation to China or other steel-producing countries, in the future we may be materially and adversely affected. Recently steel imports in Brazil have increased in light of idle installed capacity in foreign markets, then if the Brazilian Government were to remove current protective measures or fails to act against cheap subsidized steel imports, our results of operation may be adversely affected.

Protectionist and other measures adopted by foreign government could adversely affect our export sales.

In response to the increased production and export of steel by many countries, anti-dumping, countervailing duties and safeguard measures were imposed in the late 1990s and early 2000s by foreign governments representing the main markets for our exports which are in force until nowadays.  Foreign countries continue to impose restrictions on the exports to certain countries, such as the restrictions on exports of hot-rolled products from Brazil to the United States, Canada and Argentina.  The imposition of these and other protectionist measures by foreign countries may materially and adversely affect our export sales.

Changes of laws and regulation and government measures could adversely affect us.

Our activities depend on authorizations from and concessions by governmental regulatory agencies of the countries in which we operate.  If related laws and regulations change, modifications to our technologies and operations could be required, and we could be required to make unexpected capital expenditures.  The loss of any such authorization or changes in the regulatory framework we operate in may materially and adversely affect us.

Mining is subject to government regulation in the form of taxes and royalties, which can have an important financial impact on our operations.  In the countries where we operate, governments may impose new taxes, raise existing taxes and royalties, or change the basis on which they are calculated in a manner unfavorable to us.

Furthermore, in response to the increased production and export of steel by many countries, anti-dumping, countervailing duties and safeguard measures were imposed in the late 1990s and early 2000s by governments of the principal foreign markets for our steel exports in that period.  Some of these restrictions are still in force, such as the restrictions on exports of hot-rolled products from Brazil to the United States, Canada and Argentina and the restrictions imposed by the European Union on exports of certain chemical substances contained either in products used to protect the steel products or in products used to pack them, effective as of January 2009.  These and other restrictions could materially and adversely affect us, especially to the extent we rely on exporting our iron ore and steel production.

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Malfunctioning equipment or accidents on our premises, railways or ports may decrease or interrupt production, internal logistics or distribution of our products.  Our insurance policies may not be sufficient to cover all our losses.

The steel and iron ore production processes depend on certain critical equipment, such as blast furnaces, steel converters, continuous casting machines, drillers, crushing and screening equipments and shiploaders, internal logistics and distribution channels, such as railways and seaports.  This equipment and infrastructure may be affected in the case of malfunction or damage.  In 2006, there was an accident involving the gas cleaning system adjacent to Blast Furnace No. 3 at the Presidente Vargas steelworks, which prevented us from operating this blast furnace for approximately six months and resulted in losses of approximately US$520 million, all of which was reimbursed by our insurers.  Similar or any other significant interruptions in our production process, internal logistics or distribution channels (including our ports and railways) could materially and adversely affect us.

We maintain several types of insurance policies in line with our view to managing risk, but the coverage obtained in these may not be sufficient to cover all our risks which may adversely affect our financial position. We have an operational risks policy for the Presidente Vargas Steelworks and some other branches and subsidiaries, but for an insured value of R$ 850 million out of a total risk amount of R$ 25.1 billion. Despite this coverage, CSN remains responsible for the first tranche of R$ 170 million in losses (material damages and loss of profits), in excess to the deductibles, and shall be responsible for 64% of the losses above this first tranche.

We may not be able to successfully contract or renew our insurance policies in terms satisfactory to us, which may adversely affect our financial position.

Our projects are subject to risks that may result in increased costs or delay or prevent their successful implementation.

We are investing to further increase our steel, mining and cement production capacity, as well as our logistics capabilities.  Our expansion and projects are subject to a number of risks that may adversely affect our growth prospects and profitability, including the following:

·         we may encounter delays or higher than expected costs in obtaining the necessary equipment or services to build and operate a project;

·         our efforts to develop projects according to schedule may be hampered by a lack of infrastructure, including a reliable power supply;

·         we may fail to obtain, or experience delays or higher than expected costs in obtaining the required permits and/or regulatory approvals to build a project; and

·         changes in market conditions or regulations may make a project less profitable than expected at the time we initiated work on it.

Any one or a combination of factors described above may materially and adversely affect us.  

New or more stringent environmental and health regulations imposed on us may result in increased liabilities and increased capital expenditures.

Our steel making, mining, cement and logistics facilities are subject to a broad range of laws, regulations and permit requirements in Brazil relating mainly to the protection of health and the environment.  Brazilian pollution standards are expected to continue to change, including new effluent and air emission standards and solid waste-handling regulations.  New or more stringent environmental (including measures seeking to address global warming) and health standards imposed on us can require us to make increased capital expenditures.  We could be exposed to civil penalties, criminal sanctions and closure orders for non-compliance with these regulations.  Waste disposal and emission practices may result in the need for us to clean up or retrofit our facilities at substantial costs and/or could result in substantial liabilities.  Environmental legislation restrictions imposed by foreign markets to which we export our products, may also materially and adversely affect our export sales and us.     

Our governance and compliance processes may fail to prevent regulatory penalties and reputational harm.

We operate in a global environment, and our activities straddle multiple jurisdictions and complex regulatory frameworks with increased enforcement activities worldwide.  Our governance and compliance processes may not prevent future breaches of law, accounting or governance standards.  We may be subject to breaches of our Code of Ethics, business conduct protocols and instances of fraudulent behavior and dishonesty by our employees, contractors or other agents.  Our failure to comply with applicable laws and other standards could subject us to fines, loss of operating licenses and reputational harm, which may materially and adversely affect us.

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Some of our operations depend on joint ventures, consortia and other forms of cooperation, and our business could be adversely affected if our partners fail to observe their commitments.

We currently operate parts of our business through joint-ventures with other companies.  We have established a joint-venture with an Asian consortium at our 60% consolidated investee Nacional Minérios S.A., or Namisa, to mine iron ore; a joint-venture with other Brazilian steel and mining companies at MRS Logística S.A., or MRS, to explore railway transportation in the Southeastern region of Brazil, a joint-venture with Tractebel and Itambe at Itá Energética S.A., or ITASA and a consortium with Vale, Votorantim Metais, CEMIG and Anglo Gold Ashant at Igarapava Hydroelectric Power Plant to produce electricity.

Our forecasts and plans for these joint-ventures and consortia assume that our partners will observe their obligations to make capital contributions, purchase products and, in some cases, provide managerial personnel or financing.  In addition, many of the projects contemplated by our joint-ventures or consortia rely on financing commitments, which contain certain preconditions for each disbursement.  If any of our partners fails to observe their commitments or we fail to comply with all preconditions required under our financing commitments, the affected joint-venture, consortium or other project may not be able to operate in accordance with its business plans, or we may have to increase the level of our investment to implement these plans.  Any of these events may have a material adverse effect on us.

Our mineral reserve estimates may materially differ from mineral quantities that we may be able to actually recover; our estimates of mine life may prove inaccurate; and market price fluctuations and changes in operating and capital costs may render certain ore reserves uneconomical to mine.

Our reported ore reserves are estimated quantities of ore and minerals that we have determined can be economically mined and processed under present and anticipated conditions to extract their mineral content.  There are numerous uncertainties inherent in estimating quantities of reserves and in projecting potential future rates of mineral production, including many factors beyond our control.  Reserve engineering involves estimating deposits of minerals that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment.  As a result, no assurance can be given that the indicated amount of ore will be recovered or that it will be recovered at the rates we anticipate.  Estimates of different engineers may vary, and results of our mining and production subsequent to the date of an estimate may lead to revision of estimates.  Reserve estimates and estimates of mine life may require revision based on actual production experience and other factors.  For example, fluctuations in the market prices of minerals and metals, reduced recovery rates or increased operating and capital costs due to inflation, exchange rates or other factors may render proven and probable reserves uneconomic to exploit and may ultimately result in a restatement of reserves.

We may not be able to adjust our mining production volume in a timely or cost-efficient manner in response to changes in demand.

Revenues from our mining business represented in 2009 and 2010, respectively, 17% and 24% of our total net revenues.  Our ability to rapidly increase production capacity is limited, which could render us unable to fully satisfy demand for our products.  When demand exceeds our production capacity, we may meet excess customer demand by purchasing iron ore from unrelated parties and reselling it, which would increase our costs and narrow our operating margins.  If we are unable to satisfy excess customer demand in this way, we may lose customers.  In addition, operating close to full capacity may expose us to higher costs, including demurrage fees due to capacity restraints in our logistics systems.

Conversely, operating at significant idle capacity during periods of weak demand may expose us to higher unit production costs since a significant portion of our cost structure is fixed in the short-term due to the high capital intensity of mining operations.  In addition, efforts to reduce costs during periods of weak demand could be limited by labor regulations or existing labor or government agreements.

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Adverse economic developments in China could have a negative impact on our revenues, cash flow and profitability.

China has been the main driver of global demand for minerals and metals over the last few years.  In 2010, Chinese demand represented 60% of global demand for seaborne iron ore.  The percentage of our mining operating revenues attributable to sales to consumers in China was 47% in 2010. A contraction of China’s economic growth could result in lower demand for our products, leading to lower revenues, cash flow and profitability.  Poor performance in the Chinese real estate sector, one of the largest consumers of carbon steel in China, could also negatively impact our results.

Drilling and production risks could adversely affect the mining process.

Once mineral deposits are discovered, it can take a number of years from the initial phases of drilling until production is possible, during which the economic feasibility of production may change.  Substantial time and expenditures are required to:

·         establish mineral reserves through drilling;

·         determine appropriate mining and metallurgical processes for optimizing the recovery of metal contained in ore;

·         obtain environmental and other licenses;

·         construct mining, processing facilities and infrastructure required for greenfield properties; and

·         obtain the ore or extract the minerals from the ore.

If a project proves not to be economically feasible by the time we are able to exploit it, we may incur substantial write-offs.  In addition, potential changes or complications involving metallurgical and other technological processes arising during the life of a project may result in cost overruns that may render the project not economically feasible.

We may not be able to consummate proposed acquisitions successfully or integrate acquired businesses successfully.

From time to time, we may evaluate acquisition opportunities that would strategically fit our business objectives.  If we are unable to complete acquisitions, or integrate successfully and develop these businesses to realize revenue growth and cost savings, our financial results could be adversely affected.  In addition, we may incur asset impairment charges related to acquisitions, which may reduce our profitability.  Finally, our acquisition activities may present financial, managerial and operational risks, including diversion of management attention from existing core businesses, difficulties integrating or separating personnel and financial and other systems, adverse effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key employees of acquired businesses, and indemnities and potential disputes with the buyers or sellers.  Any of these activities could affect our product sales, financial condition and results of operations.

We have experienced labor disputes in the past that have disrupted our operations, and such disputes may recur.

A substantial number of our employees and some of the employees of our subcontractors are represented by labor unions and are covered by collective bargaining or other labor agreements, which are subject to periodic renegotiation.  Strikes and other labor disruptions at any of our facilities or labor disruptions involving third parties who may provide us with goods or services, have in the past and may in the future materially and adversely affect the operation of facilities, or the timing of completion and the cost of our projects.

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Risks Relating to our Common Shares and ADSs

 

Our controlling shareholder has the ability to direct our business and affairs and its interests could conflict with yours.

Our controlling shareholder has the power to, among other things, elect a majority of our directors and determine the outcome of any action requiring shareholder approval, including transactions with related parties, corporate reorganizations, dispositions, and the timing and payment of any future dividends, subject to minimum dividend payment requirements imposed under the Brazilian corporation law.  Our controlling shareholder may have an interest in pursuing acquisitions, dispositions, financings or similar transactions that could conflict with your interests as a holder of our common shares and ADSs.

If you surrender your ADSs and withdraw common shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages.

As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our common shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the common shares into non-Brazilian currency and remit the proceeds abroad.  If you surrender your ADSs and withdraw common shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal.  Thereafter, upon the disposition of or distributions relating to the common shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration.  If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our common shares.

If you seek to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our common shares or the return of your capital in a timely manner.  The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.

Holders of ADSs may not be able to exercise their voting rights.

Holder of ADSs may only exercise their voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement.  Under the deposit agreement, ADS holders must vote by giving voting instructions to the depositary.  Upon receipt of the voting instructions of the ADS holder, the depositary will vote the underlying common shares in accordance with these instructions.  Otherwise, ADS holders will not be able to exercise their right to vote unless they surrender the ADS for cancellation in exchange for our common shares.  Pursuant to our bylaws, the first call for a shareholders’ meeting must be published at least 15 days in advance of the meeting, the second call must be published at least eight days in advance of the meeting.  When a shareholders’ meeting is convened, holders of ADSs may not receive sufficient advance notice to surrender the ADS in exchange for the underlying common shares to allow them to vote with respect to any specific matter.  If we ask for voting instructions, the depositary will notify ADS holders of the upcoming vote and will arrange to deliver the proxy card.  We cannot assure that ADS holders will receive the proxy card in time to ensure that they can instruct the depositary to vote the shares.  In addition, the depositary and its agents are not liable for failing to carry out voting instructions or for the manner of carrying out voting instructions.  As a result, holders of ADSs may not be able to exercise their voting rights.

The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the common shares underlying the ADSs at the price and time you desire.

Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature.  The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than major securities markets in the United States.  Accordingly, although you are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, your ability to sell the common shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited.  There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States.  The ten largest companies in terms of market capitalization represented 55.3% of the aggregate market capitalization of the BM&FBOVESPA as of December 31, 2010.  The top ten stocks in terms of trading volume accounted for 43.4% and 49.7% and 53.2%  of all shares traded on the BM&FBOVESPA in 2010, 2009 and 2008, respectively.

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Holders of ADSs may be unable to exercise preemptive rights with respect to our common shares.

We may not be able to offer our common shares to U.S. holders of ADSs pursuant to preemptive rights granted to holders of our common shares in connection with any future issuance of our common shares unless a registration statement under the Securities Act is effective with respect to such common shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available.  We are not obligated to file a registration statement relating to preemptive rights with respect to our common shares, and we cannot assure you that we will file any such registration statement.  If such a registration statement is not filed and an exemption from registration does not exist, The JP Morgan Chase Bank, N.A., as depositary, will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of such sale.  However, these preemptive rights will expire if the depositary does not sell them, and U.S. holders of ADSs will not realize any value from the granting of such preemptive rights.

Substantial sales of our ADSs could cause the price of our ADSs to decrease significantly.

The sale of a substantial number of common shares, or the belief that this may occur, could decrease the trading price of our common shares and our ADSs.  Holders of our common shares and/or ADSs may not be able to sell their securities at or above the price they paid for them.

Item 4. Information on the Company

4A.  History and Development of the Company

History

     Companhia Siderúrgica Nacional is a Brazilian corporation (sociedade por ações) incorporated in 1941 pursuant to a decree of Brazilian President at the time, Getúlio Vargas. The Presidente Vargas steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro, started production of coke, pig iron castings and long products in 1946.

     Three major expansions were undertaken at the Presidente Vargas steelworks during the 1970s and 1980s. The first, completed in 1974, increased installed annual production capacity to 1.6 million tons of crude steel. The second, completed in 1977, increased annual production capacity to 2.4 million tons of crude steel. The third, completed in 1989, increased annual production capacity to 4.5 million tons of crude steel.

     We were privatized through a series of auctions held in 1993 and early 1994, through which the Brazilian government sold its 91% ownership interest in us.

     From 1993 through 2002, we implemented a capital improvement program aimed at increasing our annual production of crude steel, improving the quality of our products and enhancing our environmental protection and cleanup programs. As part of the investments, since February 1996, all our production has been based on the continuous casting process, rather than ingot casting, an alternative method that results in higher energy use and metal loss. From 1996 through 2002, we spent the equivalent of US$2.4 billion under the capital improvement program and on maintaining our operational capacity, culminating with the renovation in 2001 of Blast Furnace No. 3 and Hot Strip Mill No. 2 at the Presidente Vargas steelworks. These measures resulted in the increase of our annual production capacity to 5.6 million tons of crude steel and 5.1 million tons of rolled products.

General

     We are one of the largest fully integrated steel producers in Brazil and in Latin America in terms of crude steel production. Our current annual crude steel capacity and rolled product capacity is 5.6 million and 5.1 million tons, respectively. Production of crude steel and rolled steel products, increased in 2010 by 12% to 4.9 million tons and finished steel production increased in 2010 by 14% to 4.7 million tons, as compared to 2009, due to a recovery from the global economic and financial crisis in 2008 and 2009. In addition to our steel business, we operate in the mining and cement businesses, which have become increasingly important to our operations and growth.

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Steel

     Our fully integrated manufacturing facilities produce a broad line of steel products, including slabs, hot- and cold-rolled, galvanized and tin mill products for the distribution, packaging, automotive, home appliance and construction industries. In 2010, we accounted for approximately 46% of the coated steel products market share in Brazil. We are also one of the world’s leading producers of tin mill products for packaging containers. In 2010, we accounted for approximately 98% of the tin mill products market share in Brazil.

     Our production process is based on the integrated steelworks concept. Below is a brief summary of the steel making process at our Presidente Vargas steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro:

  • iron ore produced from our own mines is processed in continuous sintering machines to produce sinter;
  • sinter and lump ore direct charges are smelted with lump coke and injected powdered coal in blast furnaces to produce pig iron;
  • pig iron is then refined into steel by means of basic oxygen converters;
  • steel is continuously cast in slabs; and
  • slabs are then hot rolled, producing hot bands that are coiled and sent to finishing facilities.

     We currently produce all of our requirements of iron ore, limestone and dolomite, and a portion of our tin requirements from our own mines. Using imported coal, we produce approximately 75% of our coke requirements, at current production levels, in our own coke batteries at Volta Redonda. Imported coal is also pulverized and used directly in the pig iron production process. Zinc, manganese ore, aluminum and a portion of our tin requirements are purchased in local markets. Our steel production and distribution also require water, industrial gases, electricity, rail and road transportation, and port facilities.

Mining

     The first step to our entry into the international iron ore market was taken in February 2007, with the completion of the first phase of the expansion of our solid bulks seaport terminal in the city of Itaguaí, in the State of Rio de Janeiro, which enabled the terminal to also handle and export iron ore and to load from its facilities the first shipment of our iron ore products.

    CSN owns a number of high quality iron ore mines, all located within the Quadrilátero Ferrífero, in the State of Minas Gerais. Casa de Pedra Mining, located in Congonhas – MG, produces high quality iron ore. As far as it concerns quality, the previous statement is also applicable to Namisa – Nacional Minérios S.A. In addition to that, the company’s mining assets also include TECAR (two deep-sea water terminals), located in Porto de Itaguai (RJ), Mineração Bocaina, located in Arcos (MG), which produces dolomite and limestone, and Estanho de Rondônia SA - ERSA, which mines and casts tin.

Logistics

     The verticalization strategy and intense synergies among the Company's business units are strongly dependent on the logistics created to guarantee the transportation of the inputs at a low operating cost.

     A number of railroads and port terminals make up the logistics system integrating CSN's mining and steelmaking units.

     CSN manages two port terminals at Itaguaí, in Rio de Janeiro — bulk solids (Tecar) and Containers (Sepetiba Tecon).

     CSN has interests in two railroad companies: MRS Logística, which operates the former Southeast Network of the Federal Railroad Network, along the Rio de Janeiro-São Paulo-Belo Horizonte axis, and the Transnordestina Logística S/A. With 1,728km of track, Nova Transnordestina railway, when completed, will connect the northeastern cerrado to Pecém and Suape Ports.

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Cement

     In May 2009, CSN entered the cement market driven by the high synergy between this new activity and its current business. This project takes advantage of the slag generated by our blast furnaces and of our limestone reserves, located in the city of Arcos, in the State of Minas Gerais. The limestone, which is transformed into clinker, and the slag, account for approximately 95% of the production cost to produce cement.

     CSN plans to increase its share of the segment in Brazil aiming to diversify its products and markets and help reduce risk and adding value for its shareholders.

Energy

     CSN is one of Brazil’s largest industrial electric power consumers only behind the aluminum producers. Since 1999, we have been investing in power generation projects in order to ensure self-sufficiency. Its electrical assets are the Itá Hydroelectric Power Plant, in Santa Catarina (CSN holding a 29.5% stake), corresponding to 167 MW, the 210-MW Igarapava Hydroelectric Power Plant in Minas Gerais (holding a 17.9% interest) and the 238-MW cogeneration thermoelectric power plant in Presidente Vargas Steelworks, in Volta Redonda, which is fueled by the waste gases from the steel production process. These three plants give CSN an average generation capacity of 430 MW, supplying the group’s total need for power.  

Other Information

     CSN’s legal and commercial name is Companhia Siderúrgica Nacional.  CSN is organized for an unlimited period of time under the laws of the Federative Republic of Brazil.  Our head offices are located at Av. Brigadeiro Faria Lima, 3400, 20º floor, Itaim Bibi, Sao Paulo, Brazil, CEP04538-132 our telephone number is +55-11-3049-7100.  CSN’s agent for service of process in the United States is CT Corporation, with offices at 111 Eighth Avenue, New York, New York 10011.

4B.  Business Overview

Competitive Strengths

     We believe that we have the following competitive strengths:

 

     Fully integrated business model. We believe we are one of the most fully integrated steelmakers in the world. We have captive iron ore reserves, which differentiate us from our main competitors in Brazil that purchase their iron ore from mining companies such as Vale S.A., or Vale. In 2006, we hired Golder Associates S.A., or Golder, to evaluate the Casa de Pedra iron ore reserves. The results confirmed proven and probable mineral resources of 1.6 billion tons with a grade of approximately 48.0%. In addition to our iron ore reserves, we have captive dolomite and limestone mines that supply our Presidente Vargas steelworks. Our steelworks are close to the main steel consumer centers in Brazil, with easy access to port facilities and railroads. Our operations are strongly integrated as a result of our captive sources of raw materials, such as iron ore, and our access to owned infrastructure, such as railroads and deep-sea water port facilities.

 

     Profitable mining business The Mining business has received investments in recent years, lifting CSN into a prominent position among the country’s leading mining firms. Additional investments will increase capacity to approximately 89 mtpy, including third parts purchases in the next years, thereby strengthening CSN’s position as an important player in the iron ore worldwide market. The Company has reserves of high-quality iron ore in Casa de Pedra mine and Namisa, both located in Minas Gerais. Our mining activities provide us with strong revenue generation and have significantly increased production of iron ore in the last four years. In 2007 we sold 10.5 million tons, 18.4 million tons in 2008, 22.4 million tons in 2009 and 25.3 million tons in 2010 (considering a 100% stake in Namisa throughout this period).  All these factors contribute to the high EBITDA margins of this segment.  The company’s mining assets also include TECAR (two deep-sea water terminals) with 30Mtpy capacity, located in Porto de Itaguai (RJ), Mineração Bocaina, located in Arcos (MG), which produces dolomite and limestone, and Estanho de Rondônia SA - ERSA, which mines and casts tin.

 

 

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     Thoroughly developed transport infrastructure. We have a thoroughly developed transport infrastructure, from our iron ore mine to our steel mill to our ports. The location of our steelworks facility is next to railroad systems and port facilities, facilitating the supply of raw material, the shipment of our production and easy access to our principal clients. The concession for the main railroad used and operated by us is owned by MRS, a company in which we hold, directly and indirectly, a 33.27% ownership interest. The railway connects the Presidente Vargas steelworks to the container terminal at Itaguaí Port, which handles most of our steel exports. Since we obtained the concession to operate MRS’ railway in 1996, we have significantly improved its tracks and developed its business, with strong cash generation. We also own concessions to operate two deep-sea water terminals from which we export our products and also import coal and small amounts of coke, which are the only important raw materials that we need to purchase from third-parties.

 

     Self-sufficiency in energy generation. We are self-sufficient in energy, through our interests in the hydroelectric plants of Itá and Igarapava, and our own thermoelectric plant inside the Presidente Vargas steelworks. We also sell excess energy we generate into the energy market. Our 238 MW thermoelectric cogeneration plant provides the Presidente Vargas steelworks with approximately 60% of its energy needs for its steel mills, using as its primary fuel the waste gases generated by our coke ovens, blast furnaces and steel processing facilities. We indirectly hold 29.5% of the Itá hydroelectric plant that has installed capacity of 1,450 MW, with a guaranteed output of 668 MW to us and to the other shareholders of Itá Energética S.A., or ITASA, proportionally to our interests in the project, pursuant to 30-year power purchase agreements at a fixed price per megawatt hour, adjusted annually for inflation. In addition, we hold 17.9% of the Igarapava hydroelectric, with 210 MW fully installed capacity. We have been using part of our 22 MW take from Igarapava to supply energy to the Casa de Pedra and Arcos mines.

 

     Low cost structure. As a result of our fully integrated business model, our thoroughly developed transportation infrastructure and our self-sufficiency in energy generation, we have been consistently generating high margins. Other factors that lead to these margins are the strategic location of our steelworks facility, the use of state of the art technology and our qualified work force.

 

     Diverse product portfolio and product mix. We have a diversified product mix that includes: hot-rolled, cold-rolled, galvanized and steel tin mill products. We offer many kinds of steel packaging produced in Brazil, accounting for approximately 98.0% of the steel tin mill products and 46.0% of coated flat steel produced in Brazil. We also produce a diversified portfolio of products to meet a wide range of customer needs across all steel consuming industries. We focus on selling high margin products, such as tin plate, pre-painted, galvalume and galvanized products, in our product mix. Our galvanized product provides material for exposed auto parts, using hot-dip galvanized steel and laser-welded blanks. Our branch CSN Paraná provides us additional capacity to produce high-quality galvanized, galvalume and pre-painted steel products for the construction and home appliance industries. In addition, our subsidiary, Prada, the largest flat steel distributor in Brazil, is a strong sales channel in the domestic market, enabling us to meet demands from smaller customer, and therefore to have a strong presence in this market.

 

     Strong presence in domestic market and strategic international exposure. We have a strong presence in the domestic market for steel products, with approximately 98.0% market share of the steel tin mill product industry in Brazil and a large market share for galvanized flat steel. In addition, our subsidiaries CSN LLC and Lusosider constitute sales channels for our products, selling in the United States and in Europe kept stable in 5.0% of our total sales in 2010 and 2009.  

 

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Strategies

 

Our goal is to increase value for our shareholders by further benefiting from our competitive cost advantages, maintaining our position as one of the world’s lowest-cost steel producers, becoming an important iron ore global player, growing our cement business and optimizing our infrastructure assets (including ports, railways and power generating plants). To achieve this goal we have developed specific strategies for each of our business segments as described below.

Steel

Our strategy for our steel business involves:

ü focus on domestic markets, in which we have historically recorded higher profit margins and better competitiveness, by expanding our market-share in flat steel and by entering in the long steel market as a relevant player;

ü constant pursuit of operational excellence, by implementing cost reduction projects (eg. pellet plant, coque battery revamp, energy efficiency) and programs (eg, internal logistic optimization, inventories reduction, project development and implementation disciplines);

ü emphasis on high value-added steel products, such as galvanized, pre-painted and tin-coated, in addition to enhancing service centers and finished goods offering;

ü explore synergic markets and profitability, by employing flat steel distribution units and portfolio complementarily to accelerate entrance in longs market, capturing synergies with cement and others products; and

ü gain market-share in services and distribution network, via new deposits and service centers regions.

For information on our planned investments relating to our steel activities, see “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments”.  

Mining

In order to strengthen our position as a player in the iron ore market, we plan to expand our mining assets, Casa de Pedra and Namisa, and search for investment opportunities, primarily in mining operations and advanced projects.

We expect to reach an annual production level of approximately 89 mtpy of iron ore products in the next years, including third parts purchases, which represents roughly 3 times the volume observed in 2010, by increasing capacity to 50 mtpy in Casa de Pedra and 33 mtpy in Namisa, thereby strengthening CSN’s position as an important player in the iron ore worldwide market.  

 

In order to maximize the profitability of our product portfolio and resources, we will also focus on pellet and pellet-feed, by using Itabiritos resources, investing with strategic partners and clients in pellet capacity and seeking strategic partnerships towards captive consumption of pellet feed.

Regarding our infrastructure to sustain this growth, we will increase capacity in TECAR (our private port in the State of Rio de Janeiro) from 30 mtpy to 84 mtpy in the next years, and we are analyzing other capacity additions. In addition to the port expansion, we are also studying seaborne shipping opportunities, focused on gaining competitiveness in the Asian market.

For information on our planned investments relating to our mining activities, see “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments”.  

 Logistics 

We expect to take advantage of and expand our logistics capabilities, including our integrated infrastructure operations of railways and ports.

19 


 

We have substantially improved the infrastructure that supports the Presidente Vargas steelworks by investing in projects such as railways and port facilities in order to increase our ability to control production costs and delivery services.

In addition to investments in TECAR (iron ore and coal), we will strengthen STSA (container terminal) in order to operate larger ships, increasing its capacity and competitiveness by aggregating services to facilitate client loyalty.

In railways, we plan to accelerate implementation of our Transnordestina project and explore its logistic potential through terminals and regional cargo, focusing on iron ore, agricultural, gypsum and fuel volumes. We also plan to invest in increasing our efficiency and capacity in the southern region of Brazil, through our interest in MRS.

Cement

Our strategy for cement business includes greater utilization of by-products by continuing construction of our cement grinding and the clinker facility that we expect will produce 2.4 million tons per year of cement in the next years. We are evaluating other organic growth initiatives to expand our capacity in additional 3 million tons per year, in order to capture the strong growth expected with the Soccer World Cup of 2014 and the Olympic Games in 2016, besides the strong pace of construction of new housing units, commercial and infrastructure projects. For information on our planned investments relating to our cement activities, see “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments”.  

Additional Investments

In addition to the currently planned investments and capital expenditures, we continue to consider possible acquisitions, joint ventures and brownfield or greenfield projects to increase or complement our steel, cement, mining producing and logistics capabilities, in addition to logistics infrastructure and energy generation.

Our Steel Segment

We produce carbon steel, which is the world’s most widely produced type of steel, representing the vast bulk of global steel consumption.  From carbon steel, we sell a variety of steel products, both domestically and abroad, to manufacturers in several industries.

The following chart reflects our production cycle in general terms.

 

20 


 

fp22a

 

Our Presidente Vargas steelworks produces flat steel products — slabs, hot-rolled, cold-rolled, galvanized and tin mill products.  For further information on our production process, see “—Product Process.”

Slabs

Slabs are semi-finished products used for processing hot-rolled, cold-rolled or coated coils and sheet products.  We are able to produce continuously cast slabs with a standard thickness of 250 millimeters, widths ranging from 830 to 1,600 millimeters and lengths ranging from 5,250 to 10,500 millimeters.  We produce high, medium and low carbon slabs, as well as micro-alloyed, ultra-low-carbon and interstitial free slabs.

Hot-Rolled Products

Hot-rolled products comprise heavy-gauge hot-rolled coils and sheets, and light-gauge hot-rolled coils and sheets.  A heavy gauge hot-rolled product, as defined by Brazilian standards, is a flat-rolled steel coil or sheet with a minimum thickness of 5.01 millimeters.  We are able to provide coils of heavy gauge hot-rolled sheet having a maximum thickness of 12.70 millimeters.  Heavy gauge sheet steel is used to manufacture automobile parts, pipes, mechanical construction and other products.  Light gauge hot-rolled coils and sheets produced by us have a minimum thickness of 1.20 millimeters and are used for welded pipe and tubing, automobile parts, gas containers, compressor bodies and light cold-formed shapes, channels and profiles for the construction industry.

Cold-Rolled Products

Cold-rolled products comprise cold-rolled coils and sheets.  A cold-rolled product, as defined by Brazilian standards, is a flat cold-rolled steel coil or sheet with thickness ranging from 0.30 millimeters to 3.00 millimeters.  Compared to hot-rolled products, cold-rolled products have more uniform thickness and better surface quality and are used in applications such as automotive bodies, home appliances and construction.  In addition, cold-rolled products serve as the base steel for our galvanized and tin mill products.  We supply cold-rolled coils in thicknesses of 0.30 millimeters to 2.99 millimeters.

Galvanized Products

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Galvanized products comprise flat-rolled steel coated on one or both sides with zinc or a zinc-based alloy applied by either a hot-dip or an electrolytic process.  We use the hot-dip process, which is approximately 20% less expensive than the electrolytic process.  Galvanizing is one of the most effective and low-cost processes used to protect steel against corrosion caused by exposure to water and the atmosphere.  Galvanized products are highly versatile and can be used to manufacture a broad range of products, such as:

·         bodies for automobiles, trucks and buses;

·         manufactured products for the construction industry, such as panels for roofing and siding, dry wall and roofing support frames, doors, windows, fences and light structural components;

·         air ducts and parts for hot air, ventilation and cooling systems;

·         culverts, garbage containers and other receptacles;

·         storage tanks, grain bins and agricultural equipment;

·         panels and sign panels; and

·         pre-painted parts.

Galvanized sheets, both painted and bare, are also frequently used for gutters and downspouts, outdoor and indoor cabinets, all kinds of home appliances and similar applications.  We produce galvanized sheets and coils in continuous hot-dip processing lines, with thickness ranging from 0.30 millimeters to 3.00 millimeters.  The continuous process results in products with highly adherent and uniform zinc coatings capable of being processed in nearly all kinds of bending and heavy machinery.

In addition to standard galvanized products, we produce Galvanew®, galvanized steel that is subject to a special annealing process following the hot-dip coating process.  This annealing process causes iron to diffuse from the base steel into the zinc coating.  The resulting iron-zinc alloy coating allows better welding and paint performance.  The combination of these qualities makes our Galvanew® product particularly well suited for manufacturing automobile and home appliance parts including high gloss exposed parts.

At CSN Paraná, one of our branches, we produce galvalume, a cold-rolled material coated with a zinc-aluminum alloy.  The production process is similar to hot-dip galvanized coating, and galvalume has at least twice the corrosion resistance of standard galvanized steel.  Galvalume is primarily used in outdoor construction applications that may be exposed to severe acid corrosion environments like marine uses.

The added value from the galvanizing process permits us to price our galvanized products with a higher profit margin.  Our management believes that our value-added galvanized products present one of our best opportunities for profitable growth because of the anticipated increase in Brazilian demand for such high margin products.

Through our branch CSN Paraná, we also produce pre-painted flat steel, which is manufactured in a continuous coating line.  In this production line, a layer of resin-based paint in a choice of colors is deposited over either cold-rolled or galvanized base materials.  Pre-painted material is a higher value-added product used primarily in the construction and home appliance markets.

Tin Mill Products

Tin mill products comprise flat-rolled low-carbon steel coils or sheets with, as defined by Brazilian standards, a maximum thickness of 0.45 millimeters, coated or uncoated.  Coatings of tin or chromium are applied by electrolytic process.  Coating costs place tin mill products among the highest priced products that we sell.  The added value from the coating process permits us to price our tin mill products with a higher profit margin.  There are four types of tin mill products, all produced by us in coil and sheet forms:

·         tin plate - coated on one or both faces with a thin metallic tin layer plus a chromium oxide layer, covered with a protective oil film;

22 


 

·         tin free steel - coated on both faces with a very thin metallic chromium layer plus a chromium oxide layer, covered with a protective oil film;

·         low tin coated steel - coated on both faces with a thin metallic tin layer plus a thicker chromium oxide layer, covered with a protective oil film; and

·         black plate - uncoated product used as the starting material for the coated tin mill products.

Tin mill products are primarily used to make cans and other containers.  With six electrolytic coating lines, we are one of the biggest producers of tin mill products in the world and the sole producer of coated tin mill products in Brazil.

Production

Production Process

The principal raw materials for steel production in an integrated steelworks are iron ore, coal, coke, and fluxes like limestone and dolomite.  The iron ore consumed at the Presidente Vargas steelworks is extracted, crushed, screened and transported by railway from our Casa de Pedra mine located in the city of Congonhas, in the State of Minas Gerais, 328 km from the Presidente Vargas steelworks.  The high quality ores mined and sized at Casa de Pedra, with iron content of approximately 60%, and their low extraction costs are major contributors to our low steel production costs.

Because Brazil lacks quality coking coals, we import all the coal required for coke production.  The coal is then charged in coke batteries to produce coke through a distillation process.  See “—Raw Materials and Suppliers—Raw Materials and Energy Requirements.”  This coal distillation process also produces coke oven gas as a byproduct, which we use as a main source of fuel for our thermoelectric co-generation power plant.  After being screened, coke is transported to blast furnaces, where it is used as a combustion source and as a component for transforming iron ore into pig iron.  In 2010, we produced approximately 75% of our coke needs and imported the balance.  At sintering plants, fine-sized iron ore and coke or other fine-sized solid fuels are mixed with fluxes (limestone and dolomite) to produce sinter.  The sinter, lump iron ore, fluxing materials and coke are then loaded into our two operational blast furnaces for smelting.  We operate a pulverized coal injection, or PCI, facility, which injects low-cost pulverized coal directly into the blast furnaces as a substitute for approximately one-third of the coke otherwise required.

The iron ore is reduced to pig iron through successive chemical reactions with carbon monoxide (from the coke and PCI) in two blast furnaces that operate 24 hours a day.  The ore is gradually reduced, then melts and flows downward.  Impurities are separated from the iron to form a liquid slag with the loaded fluxes (limestone and dolomite).  From time to time, white-hot liquid iron and slag are drawn off from the bottom of the furnace.  Slag (containing melted impurities) is granulated and now is being used to produce cement.

The molten pig iron is transported to the steelmaking shop by 350-ton capacity torpedo cars and charged in basic oxygen furnaces together with scrap and fluxes.  In the basic oxygen furnaces, oxygen is blown onto the liquid burden to oxidize its remaining impurities and to lower its carbon content, thus producing liquid steel.  The molten steel is conveyed from the basic oxygen furnaces to the secondary refining equipment (degasser, ladle furnace and Argon Stirring Station).  After adjusting the chemical composition, the molten steel is transferred to the continuous casting machines from which crude steel (i.e., rectangular shaped slabs) is produced.  A portion of the slab products is sold directly in the export market.

The hot-rolling, reheated slabs from the continuous casting machines are fed into hot strip mills to reduce the thickness of the slabs from 250 millimeters to a range between 1.2 and 12.7 millimeters.  At the end of the hot strip mill, the long, thin steel strip from each slab is coiled and conveyed to a cooling yard.  Some hot-rolled coils are dispatched directly to customers in the as-rolled condition.  Others are further processed in the pickling line, in a hydrochloric bath, to remove surface oxides and improve surface quality.  After pickling, the hot-rolled coils selected to produce thinner materials are sent to be rolled in cold strip mills.  The better surface characteristics of cold-rolled products enhance their value to customers as compared to hot-rolled products.  Additional processing related to cold-rolling may further improve surface quality.  Following cold-rolling, coils may be annealed, coated (by a hot dip or electrolytic tinning process) and painted, to enhance medium-and long-term anti-corrosion performance and to add characteristics that will broaden the range of steel utilization.  Coated steel products have higher profit margins than bare steel products.  Of our coated steel products, tin mill and galvanized products are our highest margin products.

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Steel plant equipment regularly undergoes scheduled maintenance shutdowns.  Typically the rolling mills and coating lines are maintained on a weekly or monthly basis whereas the blast furnaces and other special equipment are scheduled for routine maintenance on a semi-annual or annual basis.

Our business encompasses operations and commercial activities.  Our operations activities are undertaken by our production sector, which is composed of the following two units:

·  the operations unit is responsible for steel production operations, repair shops, in-plant railroad, and process development at Volta Redonda;

·  the support unit is responsible for production planning, management of product stockyards, energy and utility facilities and work force safety assistance at the Presidente Vargas steelworks.

The production sector is also responsible for environment and quality consultancy, new products development, capital investment implementation for steel production and processing, as well as the supervision of CSN Porto Real’s and CSN Paraná’s operations.

Quality Management Program

We practice Total Quality Management, a set of techniques that have been adopted by many leading companies in our industry.  We also maintain a Quality Management System that has been certified to be in compliance with the ISO 9001 standards set forth by the International Standardization Organization, or ISO.  In October 2003, we were awarded the ISO 9000:  2000 certificate for the design and manufacture of hot-rolled, pickled and oiled products, cold-rolled, galvanized and tin mill products, which replaced the ISO 9001 Certificate that we were awarded in December 1994.  In October 2003, we were also awarded the automotive industry’s Technical Specification - 16949:  2002, for the design and manufacture of hot-rolled, pickled and oiled, cold-rolled and galvanized products, which replaced the QS 9000 standards that we were awarded in 1997.  Some important automotive companies, like Volkswagen, General Motors and Ford, require their suppliers to satisfy the QS 9000 standards.

Production Output

The following table sets forth, for the periods indicated, the annual production of crude steel within Brazil and by us and the percentage of Brazilian production attributable to us.

 

 

 

 

 

 

 

 

 

 

 

 

 

CSN% of

Crude Steel Production

 

Brazil

 

CSN

 

Brazil

 

 

(In millions of tons)

 

 

2010

 

32.8

 

4.9

 

14.9%

2009 

 

26.5 

 

4.4 

 

16.6% 

2008 

 

33.7 

 

5.0 

 

14.8% 

2007 

 

33.8 

 

5.3 

 

15.7% 

2006 

 

30.9 

 

3.5 * 

 

11.3% 

 

 

 

 

 

 

 

 

_______________

Source:  Brazilian Steel Institute (Instituto Aço Brasil), or IABr..  

* Lower production due to accident at Blast Furnace No. 3 on January 22, 2006.  

 

The following table contains some of our operating statistics for the periods indicated.

 

 

 

 

 

 

 

Certain Operating Statistics

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

(In millions of tons)

 

 (In millions of tons)

 

(In millions of tons)

Production of:  

 

 

 

 

 

 

Iron Ore *

 

21.6 

 

17.1 

 

 

17.0

Molten Steel 

 

5.0

 

4.5

 

 

5.1

Crude Steel 

 

4.9

 

4.4 

 

 

5.0

Hot-Rolled Coils and Sheets 

 

5.0 

 

4.1 

 

 

4.7

Cold-Rolled Coils and Sheets 

 

2.5 

 

2.4 

 

 

2.6

Galvanized Products 

 

1.1 

 

0.7 

 

 

1.1

Tin Mill Products 

 

0.7 

 

0.6 

 

 

0.7

Consumption of Coal for Coke Batteries 

 

2.2 

 

2.1 

 

 

2.3

Consumption of Coal for PCI 

 

0.7 

 

0.6 

 

 

0.8

*Casa de Pedra

 

 

 

 

 

 

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Raw Materials and Suppliers

The principal raw materials we use in our integrated steel mill include iron ore, coke, coal (from which we make coke), limestone, dolomite, aluminum, tin and zinc.  In addition, our production operations consume water, gases, electricity and ancillary materials.

Raw Materials and Energy Requirements

In light of the global economic and financial crisis, which resulted in lower economic activity in 2009 as compared to 2008 and decrease demand for various commodity type industrial segments, coal and iron ore miners, and coke producers charged customers lower prices.  At the end of 2009 we noticed a recovery in the economy of certain countries, including Brazil.  Consequently, there was a pressure for increase in prices of certain raw materials.

In 2010, prices of main raw materials increased due to increased post crisis demand and a strengthening of steel industry worldwide.      

These commodity segments are highly concentrated in the hands of a few global players and there can be no assurance that price increases will not be imposed on steel producers in the future.

 Iron Ore

We are able to obtain all of our iron ore requirements from our Casa de Pedra mine located in the State of Minas Gerais.  For a description of our iron ore segment see “– Our Mining Segment.”

Coal

In 2010, our coal consumption totaled 2.9 million tons and accounted for 22% of our production cost.

After the post-crisis demand recovery in the end of 2009, 2010 was a year of consolidation in terms of coal demand, especially from Asia.  Because of the cyclical and volatile nature of the coal industry, price negotiation of coking coal and PCI coal switched from an annual to a quarterly basis, as of April 2010.  CSN’s coking coal and PCI coal costs during 2010 increased significantly compared with previous year due to a demand recovery.  The prices in 2010 varied from quarter to quarter, following the benchmark price settled between BHP Billiton and Japanese Steel producers prior to the beginning of each quarter.

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In addition the 2010 average spot prices of coking coal and PCI Coal increased significantly compared to 2009, affected by demand fluctuation and unexpected heavy rains in Australia during fourth quarter, when some major exporters started to face serious operational issues at their mines as well as logistics constraints.

CSN uses a PCI system that allows its production area to use less coke in the blast furnaces during the process, substituting a portion of the coke with lower grade coal.  The PCI system has reduced our need for imported coking coal and imported coke, thereby reducing production costs.  In 2010, we used 710,940 tons of imported PCI coal.

Coke

In 2010, in addition to the approximately 1.6 million tons of coke we produced, we also consumed 440,696 tons of coke bought from third parties in China, India, Colombia and in the domestic market.  This figure represents an increase of 47% as compared to our consumption in 2009 and is similar to our historical level of consumption.  The market for coke has been very competitive since 2002, because China, a major player in the sea-borne trade, has increased its internal consumption and adopted restrictive export quotas.  In addition, India has become a major consumer of coke, considerably increasing its consumption in the past years.  Due to logistical reasons, China supplies most of India’s coke and this increase in consumption tightened even more the worldwide supply-demand balance of metallurgical coke.

Limestone and Dolomite

Our Bocaina mine is located in the town of Arcos in the State of Minas Gerais and it has been suppling, since the early '70s, limestone (calcium carbonate) and dolomite (dolomitic limestone) to  our Presidente Vargas Steelworks in Volta Redonda.  These products are used in the process of sintering and calcination.  Arcos has one of the biggest and best world’s reserves of limestone, and it’s used for the production of various products, including cement.

The annual production of limestone and dolomite to our steelworks is approximately 2 million tons.

The main products obtained from limestone and dolomite that are transferred to our steelworks in Volta Redonda are:

·         limestone and dolomite calcination:  they have  granulometry between 32 and 76 mm, and they are used in the lime plant in Volta Redonda to produce calcitic and dolomitic lime, for further use, in the steelmaking process and sintering.  At the steelworks, lime is used for chemical controlling of liquid slag, in order to preserve the refractory of the converters and assist in the stabilization of the chemical reactions that occur during the manufacturing process of steel.  In the sintering, the purpose of lime is to increase the performance of this process and final quality of the sinter that is produced.

·         limestone and dolomite sintering:  used in the production of “sinter”, in our steelworks.  The sinter is composed by fine ores, solid fuel and flux, which enable the semi-melting and sintering ore.  The sinter is used in blast furnace as a source of Fe for the production of pig iron.

·         From 2009 on, with our entry in the cement market, Arcos’mine also became responsible for supplying limestone for the cement manufacturing process in Volta Redonda.

With the startup of clinker production in 2011, our Bocaina mining will also be in charge of providing non steel limestone (limestone with high silica content), in approximately 1.3 million tons / year for clinker production, the main raw material for cement production.

Aluminum, Zinc and Tin

Aluminum is mostly used for steelmaking.  Zinc and tin are important raw materials used in the production of certain higher-value steel products, such as galvanized and tin plate, respectively.  We purchase aluminum, zinc and tin typically from third-party domestic suppliers under one or two-year contracts.  We maintain approximately a 50-day reserve of such materials at the Presidente Vargas steelworks.

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Other Raw Materials

In our production of steel, we also consume, on an annual basis, significant amounts of spare parts, refractory bricks and lubricants, which are generally purchased from domestic suppliers.

We also consume significant amounts of oxygen, nitrogen, hydrogen, argon and other gases at the Presidente Vargas steelworks.  These gases are supplied by a third-party under long-term contracts from its gas production facilities located on the Presidente Vargas steelworks site.  In 2010, we used 786,746 tons of oxygen to produce 4.9 million tons of crude steel.

Water

Large amounts of water are also required in the production of steel.  Water serves as a solvent, a catalyst and a cleaning agent.  It is also used to cool, to carry away waste, to help produce and distribute heat and power, and to dilute liquids.  Our source of water is the Paraíba do Sul River, which runs through the city of Volta Redonda.  Over 80% of the water used in the steelmaking process is recirculated and the balance, after processing, is returned to the Paraíba do Sul River.  Since March 2003, the Brazilian government has imposed a monthly tax for our use of water from the Paraíba do Sul River, based on an annual fee of approximately US$1.6 million.

Electricity

Steelmaking also requires significant amounts of electricity to power rolling mills, production lines, hot metal processing, coking plants and auxiliary units.  In 2010, the Presidente Vargas steelworks consumed approximately 2.97 million MWh of electric energy or 664 kilowatt hours per ton of crude steel.  This consumption made us one of the largest consumers of electricity in Brazil, accounting for approximately 12% of the overall consumption of electricity in the State of Rio de Janeiro.

Our main current source of electricity is our 238 MW thermoelectric co-generation power plant at the Presidente Vargas steelworks, besides the Itá and Igarapava hydroelectric facilities held by us, from which we have a take capacity available of 167 MW and 22 MW, respectively.  In addition, we have approved the construction of a new turbine generator at the Presidente Vargas steelworks, which will increase 20 MW to our existing installed capacity.  This turbine will be allocated near to our Blast Furnace No. 3, using the outlet gases from the iron making process to generate energy.

Natural Gas

In addition to electricity, we consume natural gas, mainly in our hot strip mill.  Companhia Estadual de Gás do Rio de Janeiro S.A., or CEG Rio, which was privatized in 1997, is currently our major source of natural gas.  Variations in the supply of gas can affect the level of steel production.  We have not experienced any significant stoppages of production due to a shortage of natural gas.  We also purchase fuel oil from Petrobras.  See “Item 3D.  Risk Factors—Risks Relating to the Steel Industry and CSN—Interruptions in the supply of natural gas and power transmission over the government power grid may adversely affect our business, financial condition and results of operations.”

Diesel Oil

In mid-October 2006 and July of 2008, we entered into an agreement to receive diesel oil from the Companhia Brasileira de Petróleo Ipiranga, or Ipiranga, in order to supply our equipment in Casa de Pedra, Arcos and Namisa in the State of Minas Gerais, which are the plants responsible for our mining activity.  In 2009 and 2010, we had a consumption of 57,177 kiloliters and 66,237 kiloliters of diesel oil, respectively.  This increase was mainly due to the growth of our mining activity to support our growing iron ore production, which required us to enlarge our mining equipment fleet.  In 2009 and 2010, we paid US$60.4 million and US$37.8 million, respectively, for the diesel oil we consumed.

27 


Clinker

 

We are importing Clinker  in order to supply our cement mill in Presidente Vargas steelworks in the state of Rio de Janeiro. Addionally, as from Abril 2011, we started producing our own clinker in our plant in Arcos, Minas Gerais.

Suppliers

We acquire the inputs necessary for the production of our products in Brazil and abroad, with aluminum, zinc, tin, spare parts, refractory bricks, lubricants, oxygen, nitrogen, hydrogen and argon being the main inputs acquired in Brazil.  Coal and coke are the only inputs acquired abroad.

Our main raw materials suppliers are set forth below:

 

 

 

 Main Suppliers  

 

Raw Material  

 

 

 

 BHP Billiton, Jim Walter Resources, Alpha Natural Resources, Rio Tinto, Marubeni and Jellinbah 

 

Coal 

 Noble, Glencore and CI Milpa

 

Coke 

 Reciclagem Brasileira de Metais Ltda.

 

Aluminum 

 Votorantim Metais(1)

 

Zinc 

 White Solder and Melt 

 

Tin 

 Sotreq, P & H Minepro and MTU do Brasil .  

 

Spare parts 

 Magnesita, RHI and Saint Gobain 

 

Refractory bricks 

 

Petrobras,Ipiranga and Quaker 

 

Lubricants 

___________

(1) We depend on Votorantim Metais as they are the only suppliers of zinc in Brazil

 

Facilities

Steel Mill

The Presidente Vargas steelworks, located in the city of Volta Redonda, in the State of Rio de Janeiro, began operating in 1946.  It is an integrated facility covering approximately 4.0 square km and containing five coke batteries (three of which are currently in operation), three sinter plants, two blast furnaces, a basic oxygen furnace steel shop, or BOF shop, with three converters, three continuous casting units, one hot strip mill, three cold strip mills, two continuous pickling lines, one continuous annealing line, three continuous galvanizing lines, four continuous annealing lines exclusively for tin mill products and six electrolytic tinning lines.

Our major operational units and corresponding effective capacities as of December 31, 2010, including CSN LLC and Lusosider, are set forth in the following chart:

Effective Capacity

 

 

 

 

 

 

 

Tons 
per year  

 

Equipment 
in operation  

Process:   

 

 

 

 

   Coking plant 

 

1,680,000 

 

3 batteries 

   Sintering plant 

 

6,930,000 

 

3 machines 

   Blast furnace 

 

5,380,000 

 

2 furnaces 

   BOF shop 

 

5,750,000 

 

3 converters 

   Continuous casting 

 

5,600,000 

 

3 casters 

Finished Products:   

 

 

 

 

   Hot strip mill 

 

5,100,000 

 

1 mill 

   Cold strip mill 

 

4,550,000 

 

6 mills 

   Galvanizing line 

 

2,095,000 

 

7 lines 

   Electrolytic tinning line 

 

1,190,000 

 

7 lines 

 

28 


Downstream Facilities

CSN Paraná

Our branch CSN Paraná produces and supplies plain regular galvanized, Galvalume® and pre-painted steel products for the construction and home appliance industries.  The plant has an annual capacity of 330,000 tons of galvanized products and Galvalume® products, 100,000 tons of pre-painted products, which can use cold-rolled or galvanized steel as substrate, and 220,000 tons of pickled hot-rolled coils in excess of the coils required for the coating process.

Metalic

We have a 99.99% ownership interest in Cia.  Metalic Nordeste, or Metalic.  Metalic is one of the few two-piece steel can producer in all the Americas.  It has approximately 48% of the packaging market for carbonated drinks in the Northeastern regions of Brazil.  Currently, we are the only supplier to Metalic of the steel used to make two-piece cans.  The development of drawn-and-wall-ironed steel for the production of two-piece cans is an important achievement in the production process at the Presidente Vargas steelworks.  In 2010, the company sold 831 million cans of 350 ml, 60 million cans of 250 ml and 1,284 million ends, and of these 13% were exported to Latin America.

Prada

We have a 99.99% ownership interest in Cia.  Matelúrgica Prada, or Prada.  Established in 1936, Prada is the largest Brazilian steel can manufacturer and has an annual production capacity of over one billion cans in its three industrial facilities located in the states of São Paulo, Rio Grande do Sul and Minas Gerais.  Currently, we are the only Brazilian producer of tin plate, Prada’s main raw material, which makes Prada one of our major customers of tin plate products.  Prada has important clients in the food and chemical industries, including packages of vegetables, fishes, dairy products, meat, aerosols, paints and varnishes, and other business activities.  On December 30, 2008, we merged one of our subsidiaries, Indústria Nacional de Aços Laminados S.A., or INAL, into Prada.  INAL was a distributor of laminated steel founded in 1957 and, after the merger, it became a branch of Prada responsible for distribution of Prada’s products, or Prada Distribuição.

Prada Distribuição is also the leader in the Brazilian distribution market, with 460,000 tons per year of installed processing capacity.  Prada Distribuição has two steel service centers and five distribution centers strategically located in Brazil.  Its main service center is located in the city of Mogi das Cruzes between the cities of São Paulo and Rio de Janeiro.  Its product mix also includes sheets, slit coils, sections, tubes, and roofing in standard or customized format, according to client’s specifications.  Prada Distribuição processes all range of products produced by us and services 4,000 customers annually from the civil construction, automotive and home appliances sectors, among others.

Inal Nordeste

Inal Nordeste, or INOR, is our subsidiary and a distributor of laminates located in Northeastern Region.  INOR has a service center located in the city of Camaçari, in the State of Bahia, to support sales in the Northeastern and North regions of Brazil, with 155,000 tons per year of installed processing capacity.  On May 30, 2011, INOR was merged into the Company, then allowing the optimization of processes and operations as well as reduction of costs.

Companhia Siderurgica Nacional, LLC

CSN LLC holds the assets of former Heartland Steel, a flat-rolled steel processing facility in Terre Haute, Indiana.  This facility has an annual production capacity of 180,000 tons of cold-rolled products and 315,000 tons of galvanized products.  Currently, CSN LLC is obtaining hot coils by buying slabs from CSN and then having them converted into hot coils by local steel companies or buying hot rolled coils directly from mills in the United States.  See “Item 4B.  Government Regulation and Other Legal Matters—Anti-Dumping Proceedings—United States” for a discussion about anti-dumping issues on Brazilian hot coils exports to the United States.

29 


 

Lusosider, Aços Planos, S.A.

We own 99.94% of Lusosider, a producer of hot-dip galvanized products and cold-rolled located in Seixal, near Lisbon, Portugal.  Lusosider produces approximately 240,000 tons of galvanized products and 50,000 tons of cold-rolled annually.  Its main customers include service centers and tube making industries.

Our Mining Segment

Our mining activities are one of the largest in Brazil and are mainly driven by exploration of one of the richest Brazilian iron ore reserves, Casa de Pedra, in the State of Minas Gerais.  We sell our iron ore products mainly in Asia, Europe and Brazil with sales and marketing taking place through our principal hubs of Minas Gerais, in Brazil, Madeira Islands, in Portugal, and Hong Kong.

Our Mines

Location, Access and Operation

Casa de Pedra

Casa de Pedra mine is an open pit mine located next to the city of Congonhas in the State of Minas Gerais, Brazil, approximately 80 km South of the city of Belo Horizonte and 360 km North of the city of Rio de Janeiro.  The site is approximately 1,000 meters above sea level and accessible from the cities of Belo Horizonte or Congonhas through mostly paved roads.

Casa de Pedra mine is a hematite-rich iron deposit of an early proterozoic banded iron formation in Brazil’s Iron Ore Quadrangle region (Quadrilátero Ferrífero), which is located in the central part of the State of Minas Gerais in the Southeastern region of Brazil and has been one of the most important iron producing regions for the last 50 years.

Our iron ore at Casa de Pedra is currently excavated by a fleet composed of Marion 191M electric shovels, P&H 1900AL electric shovels, PC 5500 Demag hydraulic shovels, wheel loaders (different brands) and then hauled by a fleet of Terex MT3300AC (150 tons), Caterpillar CAT793 (240 tons) and Terex Unit Rig  MT4400 (240 tons).

Casa de Pedra mine is wholly-owned by us and accounts for all our iron ore supply, producing lump ore, sinter feed and pellet feed fines with high iron content.

The maps below illustrate the location of our Casa de Pedra mine:

 

fp50a  

 

 

30 


 

fp50b

 

Namisa

We own additional iron ore assets through Namisa, our 60% consolidated investee, which acquired CFM in July, 2007.  CFM was incorporated in 1996 with the purpose of utilizing and enhancing the ore treatment facilities of the Itacolomy mines, for the beneficiation of crude ore extracted from its deposit, the Engenho mine.

The Engenho mine is located at the Southwestern region of the Iron Ore Quadrangle, 60 km South of the city of Belo Horizonte.

The maps below illustrate the location of our Engenho mine:

 

fp52a  

31 


 

 

The Fernandinho mine, an asset that we also hold through Namisa, is located in the city of Itabirito, in the State of Minas Gerais.  This town is located in the Middle-East region of the State of Minas Gerais and approximately 43 km from the city of Belo Horizonte.

The maps below illustrate the location of our Fernandinho mine:

 

fp53a  

 

Limestone and Dolomite Mine

Our extraction and preparation of limestone and dolomite is done at our Bocaína mining facility located in the city of Arcos, in the State of Minas Gerais.  This mining facility has an installed annual production capacity of approximately 4.0 million tons.  We believe this mining facility has sufficient limestone and dolomite reserves to adequately supply our steel production, at current levels, for more than 45 years.  The mining facility is located 455 km from the Presidente Vargas steelworks.

Tin

We own a tin mine and a smelter located in the State of Rondônia.  The inventory of the geological reserves has been prepared from a review of the major reports from the Santa Barbara Mine Document Center.  The majority of the deposits and/or target areas are within Mining Leases that have been consolidated into Mining Group (Grupamento Mineiro No. 131/92).  The reserves provided were recognized by the DNPM.  The reserves and resources presented are “in situ.”

Mineral Rights and Ownership

The Mining Code and the Brazilian Federal Constitution impose requirements on mining companies relating to, among other things, the manner in which mineral deposits are exploited, the health and safety of workers, the protection and restoration of the environment, the prevention of pollution and the promotion of the health and safety of local communities where the mines are located.  The Mining Code also imposes certain notifications and reporting requirements.

We hold concessions to mine iron ore, limestone and dolomite.  We purchase manganese in the local market.  Except for Namisa’s mines, in which we have a 60% ownership interest, we own 100% of each of our mines.  In addition, each mine is an “open pit” mine.  Iron ore extraction, crushing, screening and concentration are done in three different sites:  Casa de Pedra (CSN’s property), Pires Beneficiation Plant and Fernandinho Mine (both Namisa’s property).

32 


 

Casa de Pedra

Our mining rights for Casa de Pedra mine include the mine, beneficiation plant, roads, loading yard and railway branch and are duly registered with the Brazilian Department of Mineral Production (Departamento Nacional de Produção Mineral), or DNPM.  We have also been granted by DNPM easements in 15 mine areas located in the surrounding region, which are not currently part of Casa de Pedra mine, and hold title to all our proved and probable reserves.

We believe we have obtained and are in compliance with all licenses and authorizations for our operations and projects at Casa de Pedra mine.

The exploitation in Casa de Pedra mine is subject to mining lease restrictions, which were duly addressed in our iron ore reserve calculations.  Quality requirements (chemical and physical) are the key “modifying factors” in the definition of ore reserves at Casa de Pedra and were properly accounted for by the CSN mine planning department.

Mineral Reserves

The following table sets forth the type of each of our mines, period of operation, projected exhaustion dates and percentage of our interest:

Mine  

 

Type  

 

Operating Since  

 

Projected exhaustion date  

 

CSN % interest  

 

 

 

 

 

 

 

 

 

Iron:   

 

 

 

 

 

 

 

 

Casa de Pedra (Congonhas, Minas Gerais)

 

Open pit 

 

1913 

 

2041 

 

100 

Engenho (Congonhas, Minas Gerais)

 

Open pit 

 

2007 (Start of operation by Namisa)

 

2041 

 

60 

Fernandinho (Itabirito, Minas Gerais)

 

Open pit 

 

2007 (Start of operation by Namisa)

 

2030 

 

60 

 

Limestone and Dolomite:   

 

 

 

 

 

 

 

 

Bocaina (Arcos, Minas Gerais)

 

Open pit 

 

1946 

 

2052 

 

100 

 

Tin:   

 

 

 

 

 

 

 

 

(Itapoã do Oeste, Rondônia)

 

Open pit 

 

1950 

 

 

100 

 

The following table sets forth our estimates of proven and probable reserves and other mineral deposits at our mines reflecting the results of reserve study.  They have been calculated in accordance with the technical definitions contained in the SEC’s Industry Guide 7, and estimates of mine life described herein are derived from such reserve estimates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       MINERAL RESOURCES – As of December 31, 2010 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

Proven and Probable Reserves(1)

 

Mineral Deposits Resources(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recoverable  

 

 

  

 

Ore Tonnage(3)

 

 

 

 

 

Product(5)

 

Tonnage  

Mine Name and Location  

 

(millions of tons)

 

Grade(4)

 

Rock Type  

 

(millions of tons)

 

(millions of tons)

 

 

 

 

 

 

 

 

 

 

 

 

 

                     

)

 

Probable(7)

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

Iron:   

 

 

 

 

 

 

 

 

 

 

 

 

Casa de Pedra(Congonhas, 

 

 

 

 

 

 

 

Hematite (21%)

 

 

 

 

Minas Gerais)

 

1,016 

 

514 

 

47.79% Fe 

 

Itabirite (79%)

 

891

 

8,285

Engenho 

 

 

 

 

 

 

 

 

 

 

 

 

(Congonhas, Minas Gerais)

 

 

 

 

 

46.07% 

 

Itabirite (100%)

 

 

 

857

Fernandinho 

 

 

 

 

 

 

 

 

 

 

 

 

(Itabirito, Minas Gerais)

 

 

 

 

 

40.21% 

 

Itabirite (100%)

 

 

 

582

Total Iron:   

 

1,016

 

514  

 

 

 

 

 

891

 

9,724

(Congonhas, Minas Gerais)

 

 

 

 

 

 

 

 

 

 

 

 

 

Limestone and Dolomite:   

 

Proven(6)

 

Probable(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bocaina 

 

 

 

 

 

41.3%CaO 

 

Limestone (86%)

 

 

 

 

(Arcos, Minas Gerais)

 

117.71

 

41.9

 

5.99%MgO 

 

Dolomite (14%)

 

156

 

1,187.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Proven+Probable Reserves(Mm3)

 

 

 

 

 

Recoverable Product5 

 

Resources (Mm3

 

 

 

 

 

 

 

 

 

 

(in tons)

 

(in million cubic meters)

 

 

 

 

 

 

 

 

 

 

 

 Tin  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paleo valley and 

 

 

 

 

(Itapoã do Oeste, Rondônia)

 

40,31

 

 

 

shallow 

 

23,509 

 

94,85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

__________________

 

 

(1)      Reserves means that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. 
(2)      Includes inferred tonnages.
(3)      Represents ROM material. 
(4)      Grade is the proportion of metal or mineral present in ore or any other host material. 
(5)      Represents total product tonnage after mining and processing losses.
(6)      Means reserves for which:  (i) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (ii) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well- established.
(7)      Means reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measure) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced.  The degree of assurance, although lower than that for proven (measure) reserves, is high enough to assume continuity between points of observation.

33


 

 

Casa de Pedra

We have concluded an extensive, multi-year study of our iron ore reserves at Casa de Pedra.  The study consisted of three phases.  Phase one, which was completed in 1999, covered the ore bodies that are currently being mined or are close to the current operating open pits.  Phase two, which was completed in early 2003, covered the other iron ore deposits at Casa de Pedra site.  Phase three started in 2005 and involved a complete revaluation of our mineral reserves at Casa de Pedra.

We conducted extensive work throughout 2006 to document and classify all information related to both the current and future operations of the Casa de Pedra mine.

In 2006, we hired Golder Associates S.A., or Golder, to undertake an independent analysis of the Casa de Pedra iron ore reserves.  Golder carried out a full analysis of all available information and has independently validated our reported reserves.

Golder accepts as appropriate the estimates regarding proven and probable reserves made by us, totaling 1,631 million tons of iron ore (as of December 31, 2006) at a grade of 47.79% Fe and 26.63% SiO2.  This new estimate of our iron ore reserves at Casa de Pedra is significantly larger than our estimate of 444 million tons, reported on an appraisal report prepared in 2003.

In 2010, we had a total drilling of 8,489 meters.  We are extending our drilling campaign with additional 66,000 meters to increase and improve our knowledge about the iron ore deposits at Casa de Pedra. Of this total, we have already concluded 8,271 meters.  When this drilling campaign is concluded, we intend to conduct a new ore reserve audit.

 

34 


 

 

Namisa

An initial study was conducted at Fernandinho and Engenho mines to define the geological resources and final pits.  In 2008 and 2009, we extended our drilling campaign with additional 5,179 meters at Engenho mine and 2,771 meters at Fernandinho mine (totalizing a campaign of 7,950 meters) to increase and improve our knowledge about the iron ore deposits at these mines.  We expect that, as soon as a new model and final pit is finished, this reserve could be audited and incorporated in our mineral deposits.

Production

Casa de Pedra

The Casa de Pedra facilities are located in the city of Congonhas, in the State of Minas Gerais.  The Casa de Pedra mine is located 350 km from the Presidente Vargas steelworks and supplies iron ore products to our steel mill, as well as for export through the Itaguai Port.  Casa de Pedra’s equipment fleet and treatment facilities have an installed annual ROM capacity of approximately 85.0 million tons and 21.5 million tons, respectively. In 2010 Casa de Pedra produced 21.6 million tons of iron ore.

Namisa

The beneficiation plant at Pires also processed crude ore acquired from other companies, which along with its own ROM, generates final products such as: lump ore, small lump ore (hematitinha), sinter feed and concentrates.  The beneficiation plant at the Fernandinho unit generated 0.5 million tons of small lump ore and sinter feed products, in which the sinter feed practically corresponded to the total production.

Most of the ROM of the Pires Beneficiation Plant comes from Engenho mine (Namisa’s property), which is located at the northern border of the Casa de Pedra mine.  Pires Beneficiation Plant has the capacity to process 10.3 million tons per year.  From this total, approximately 3 million tons are currently provided by the Engenho mine and the balance is purchased from third parties.

Namisa complements our strategy to be a world leading producer of high quality iron ore.  Namisa remains fully integrated with our railway and port logistics corridor, through long-term contracts, which provide sufficient railway and port logistics capacity for Namisa’s current and future production.  Namisa is a leading company in iron ore mining and trading, with mining and processing operations in the State of Minas Gerais.  Trading iron ore is obtained from small mining companies in the neighborhood and other trading companies.  For information on the sale of 40% of our ownership interest in Namisa, see “Item 4. Information on the Company —A.  History and Development of the Company—Acquisitions and Dispositions.”

Our steelmaking operations consumed 6.9 million tons of iron ore during 2010, consisting of 5.1 million tons of sinter-feed material and 1.8 million tons of lump ore.  As we do not have pelletizing plants, the total amount of pellets has been acquired in the Brazilian market.

Distribution

Transportation costs are a significant component of our steel and iron ore production costs and are a factor in our price-competitiveness in the export market.  Railway transportation is the principal means by which we transport raw materials from our mines to the Presidente Vargas steelworks and steel and iron ore products to ports for shipment overseas.  Iron ore, limestone and dolomite from our two mines located in the State of Minas Gerais are transported by railroad to the Presidente Vargas steelworks for processing into steel.  The distances from our mines to the Presidente Vargas steelworks are 328 km and 455 km.  The distances from our mines to the ports are 440 km and 160 km.  Imported coal and coke bought from foreign suppliers are unloaded at the port of Itaguaí, 90 km west of the city of Rio de Janeiro, and shipped 109 km by train to the Presidente Vargas steelworks.  Our finished steel products are transported by train, truck and ships to our customers throughout Brazil and abroad.  Our principal Brazilian markets are the cities of São Paulo (335 km from the Presidente Vargas steelworks), Rio de Janeiro (120 km) and Belo Horizonte (429 km).

35 


 

 

Until recently, Brazil’s railway system (including railcars and tracks) was principally government-owned and in need of repair, but has now been largely privatized.  In an attempt to increase the reliability of our rail transportation, we indirectly hold concessions for the main railway systems we use.  For further information on our railway concessions, see “—Facilities—Railways.”

We export mainly through the ports of Itaguaí and Rio de Janeiro, and import coal and coke through the Itaguaí Port, all in the State of Rio de Janeiro.  The coal and container terminals have been operated by us since August 1997 and 1998, respectively.

Our Logistics Segment

Our logistics segment is comprised of railway and port facilities.

Railways

Southeastern Railway System

MRS has a concession to operate, through the year 2026, Brazil’s Southeastern railway system.  As of December 31, 2010, we held directly and indirectly 33.27% of MRS’ total capital.  The Brazilian Southeastern railway system, with 1,674 km of track, serves the São Paulo – Rio de Janeiro – Belo Horizonte industrial triangle in Southeast Brazil, and links our mines located in the State of Minas Gerais to the ports located in the states of São Paulo and Rio de Janeiro and to the steel mills of CSN, Companhia Siderúrgica Paulista, or Cosipa, and Gerdau Açominas.  In addition to serving other customers, the line transports iron ore from our mines at Casa de Pedra in the State of Minas Gerais and coke and coal from the Itaguaí Port in the State of Rio de Janeiro to the Presidente Vargas steelworks and transports our exports to the ports of Itaguaí and Rio de Janeiro.  The railway system connects the Presidente Vargas steelworks to the container terminal at Itaguaí Port, which handles most of our steel exports.  Our transport volumes represent approximately 28% of the Brazilian Southeastern railway system’s total volume.  While we are jointly and severally liable with the other principal MRS shareholders for the full payment of the outstanding amount (See “Item 5E.  Off-Balance Sheet Arrangements”) , we expect that MRS will make the lease payments through internally generated funds and proceeds from financing.

 

Northeastern Railway System

As of December 31, 2010, we hold 76.45% of the capital stock of Transnordestina Logística S.A. Transnordestina Logística S.A. has a 30-year concession granted in 1998 to operate Brazil’s Northeastern railway system.  The Northeastern railway system includes 4,238 km of track and operates in the states of Maranhão, Piauí, Ceará, Paraíba, Pernambuco, Alagoas and Rio Grande do Norte.  It also connects with the region’s leading ports, thereby offering an important competitive advantage through opportunities for intermodal transportation solutions and made-to-measure logistics projects. 

For more information on the merger and financings for Transnordestina, see “Item 4D. Property, Plant and Equipment – Capital Expenditures – Planned Investments”.  

Port Facilities

Solid Bulks Terminal

We hold the concession to operate TECAR, a solid bulks terminal, one of four terminals that form the Itaguaí Port, located in the State of Rio de Janeiro, for a term expiring in 2022 and renewable for another 25 years.  Itaguaí Port, in turn, is connected to the Presidente Vargas steelworks, Casa de Pedra and Namisa by the southeastern railway system.  Our imports of coal and coke are made through this terminal.  Under the terms of the concession, we undertook to load and unload at least 3.0 million tons of bulk cargo annually.  Among the approved investments that we announced is the development and expansion of the solid bulks terminal at Itaguaí to also handle up to 84 million tons of iron ore per year.  For further information, see “Item 4. Information on the Company —A.  History and Development of the Company —Planned Investments—Iron Ore Project.”

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Container Terminal

We own 99.99% of Sepetiba Tecon S.A., or TECON, which has a concession to operate, for a 25-year term that is renewable for another 25 years, the container terminal at Itaguaí Port.  As of December 31, 2010, US$183 million of the cost of the concession remained payable over the next 15 years of the lease.  For more information, see “Item 5E.  Off-Balance Sheet Arrangements”.  The Itaguaí Port is located in the heart of Brazil’s Southeast Region, with all major exporting and importing areas of the states of São Paulo, Minas Gerais and Rio de Janeiro within 500 km from the port.  This area represents more than 60% of the Brazilian gross domestic product, or GDP, according to the Brazilian Geography and Statistics Institute (Instituto Brasileiro de Geografia e Estatística).  The Brazilian Federal Port Agency spent US$48 million in port infrastructure projects such as expanding the maritime access channel and increasing the depth.  In addition, significant investments were made by the Brazilian federal government in adding two extra lanes to the Rio Santos road, and are being made in constructing the Rio de Janeiro Metropolitan Bypass, a beltway that will cross the Rio de Janeiro metropolitan area.  Also, MRS railway is investing in an extra rail track along the way to the Itaguaí Port.  These factors, combined with favorable natural conditions, like natural deep waters and low urbanization rate around port area, allow the operation of large vessels as well as highly competitive prices for all the services rendered, resulting in the terminal being a major hub port in Brazil.  For further information on our planned investments relating to our Itaguaí CSN Logistics Platform Project, see “Item 4. Information on the Company —A.  History and Development of the Company —Planned Investments—Itaguaí CSN Logistics Platform Project”.

The figures show the effect of investments made since 2007 in two Super Post Panamax Portainers and two Rubber Tired Gantry, or RTG, cranes.  These investments, along with a focused marketing and sales strategy, enabled the terminal to rank first in market share among the three terminals of the state of Rio de Janeiro, with 40% of the total moves in those terminals.

We plan to carry out new infrastructure and equipment investments in Sepetiba TECON, as the Berth 301 Equalization and the acquisition of two new Super Post Panamax Portainers and four new RTG cranes to yard operations.  These investments will increase TECON’s capacity from 320,000 containers (or 480,000 TEUs) to 410,000 containers (or 610,000 TEUs) a year and from 2.0 million tons to 6.0 million tons a year of steel products.  We intend to use this port to ship all our exports of steel products.  In 2010, 69% of the exported steel products (or 147,691 tons), was shipped from this port, as compared to 91.6% in 2009.

In 2010, the terminal has resumed the growth that had been affected by the global downturn.  Is achieved 196,313 units handled (or 298,417 TEUS), which represents an increase of 27% compared to 2009.

Our Energy Segment

Our energy segment is comprised of generation plants and is aimed at enabling us to maintain our self-sufficiency in energy, reducing our production cost and our exposure to fluctuations or availability of certain energy sources.

Our energy related assets include:

Thermoelectric Co-Generation Power Plant

We completed the construction of a 238 MW thermoelectric co-generation power plant at the Presidente Vargas steelworks in December 1999.  Since October 2000, the plant has provided the Presidente Vargas steelworks with approximately 60% of the electric energy needs for its steel mills.  Aside from operational improvements, the power plant supplies our strip mills with electric energy, processed steam and forced air from the blast furnaces, benefiting the surrounding environment through the elimination of flares that burn steel-processing gases into the atmosphere.

Itá Hydroelectric Facility

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Each of Tractebel and we own 48.75%, and Companhia de Cimento Itambé, or Itambé, owns the remaining 2.5% of ITASA, a special-purpose company formed for the purpose of owning and operating, under a 30-year concession, 60.5% of the Itá hydroelectric facility on the Uruguay river in Southern Brazil.  Tractebel directly owns the remaining 39.5% of the Itá hydroelectric facility.

The power facility was built under a project finance structure with an investment of approximately US$860 million.  The long-term financing for the project was closed in March 2001 and consisted of US$78 million of debentures issued by ITASA, a US$144 million loan from private banks and US$116 million of direct financing from BNDES, all of which are due by 2013.  The sponsors of the project have invested approximately US$306 million in this project.

Itá has an installed capacity of 1,450 MW, with a firm guaranteed output of 668 MW, and became fully operational in March 2001.

We and the other shareholders of ITASA have the right to take our pro rata share (proportionally to our ownership interest in the project) of Itá’s output pursuant to 30-year power purchase agreements at a fixed price per megawatt hour, adjusted annually for inflation.  Since October 2002, we have been using our entire Itá take internally.

Igarapava Hydroelectric Facility

We own 17.9% of a consortium that built and has the right to operate for 30 years the Igarapava hydroelectric facility.  Other consortium members are Vale, Companhia Mineira de Metais, Votorantim Metais Zinco, AngloGold Ashanti Mineração Ltda., and Companhia Energética de Minas Gerais, or CEMIG. The plant has  an installed capacity of 210 MW, corresponding to 136 MW of firm guaranteed output as of December 31, 2010.  We have been using part of our 22.8 MW take from Igarapava to supply energy to the Casa de Pedra and Arcos mines and to the Presidente Vargas steelworks.  From time to time, we also sell the excess energy in the spot energy market.

Marketing Organization and Strategy

Steel

Our steel products are sold both domestically and abroad as a main raw material for several different manufacturing industries, including the automotive, home appliance, packaging, construction and steel processing industries.

Our sales approach is to establish brand loyalty and achieve a reputation for quality products by developing relationships with our clients and focusing on their specific needs.

Our commercial area is responsible for sales of all of our products.  This area is divided into two major teams, one focused on international sales and the other on domestic sales.  The domestic market oriented sales team is divided into six market segments:  packaging, distribution, automotive, home appliances, original equipment manufacturer, or OEM, and construction.  Each one of these segments has a specific strategic goal to provide tailor-made steel solutions that meet the specific needs of each client they serve.

The distribution division is responsible for supplying large steel processors and distributors, as well as some industries that produce small diameter pipe and light profiles.  The packaging unit acts in an integrated way with suppliers, representatives of the canning industry and distributors to respond to customer needs for finished-products.  The automotive unit is supplied by a specialized mill, CSN Porto Real, and also by a portion of the galvanized material produced at Presidente Vargas steelworks, benefiting from a combined sales strategy.

In 2010, more than a half of our domestic sales were made through our own sales force directly to customers.  The remaining sales were to independent distributors for subsequent resale to smaller clients.

Historically, our export sales were made primarily through international brokers.  However, as part of our strategy to establish direct, longer-term relationships with end-users, we have decreased our reliance on such brokers.  We have focused our international sales to more profitable markets in order to maximize revenues and shareholder returns.

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All of our sales are on an order-by-order basis and have an average delivery time of 45 days.  As a result, our production levels closely reflect our order log book status.  We forecast sales trends in both the domestic and export markets based on the historical data available from the last two years and the general economic outlook for the near future.  We have our own data systems to remain informed of worldwide and Brazilian market developments.  Further, our management believes that one of the keys to our success is maintaining a presence in the export market.  Such presence gives to us the flexibility to shift between domestic and export markets, thereby allowing us to maximize our profitability.

Unlike classic commodity products, there is no exchange trading of steel, or uniform pricing, as wide differences exist in terms of size, quality and specifications.  In general, exports are priced based on international spot prices of steel at the time of sale in U.S. dollars or Euros, depending on the destination.  Sales are normally paid at sight, or within 14 or 28 days, and, in the case of exports, usually backed by a letter of credit and an insurance policy.  Sales are made primarily on cost and freight terms.

Sales by Geographic Region

In 2010, we sold steel products to customers in Brazil and 35 other countries.  The fluctuations in the portion of total sales assigned to domestic and international markets, which can be seen in the table below, reflect our ability to adjust sales in light of variations in the domestic and international economies, as well as steel demand and prices, domestically and abroad.

The four main export markets for our products are Europe, Latin America, Asia, and North America, representing 40%, 33%, 12% and 7%, respectively, of our export sales volume in 2010.

In North America, we take advantage of our subsidiary CSN LLC, which acts as a commercial channel for our products.  In order to gain a cost advantage among our U.S. competitors, CSN is able to export slabs to CSN LLC which are processed at third parties into hot-rolled coil and then transformed into more added value products at CSN LLC’s plant, such as cold-rolled coil and galvanized.  Moreover, we are able to export cold-rolled coils which can be directly sold or processed by CSN LLC in order to manufacture galvanized products.

CSN – Sales of Steel Products by Destination
(In thousands of metric tons and millions of R$)

 

2010

2009

 

Tons

% of Total

Net Operating Revenues(2)

% of Total

Tons

% of Total

Net Operating Revenues(2)

% of Total

Brazil

4,135

86.2

8,575

88.6

3,243

78.9

6,770

85.8

Export

661

13.8

1.107

11.4

867

21.1

1,124

14.2

Total

4,796

100.0

9,682

100.0

4,110

100.0

7,894

100.0

Exports by Region

 

 

 

 

 

 

 

 

Asia

29

0.6

41

0.4

259

6.3

249

3.9

North America(1)

15

0.3

407

4.2

243

5.9

307

3.9

Latin America

55

1.1

187

1.9

55

1.3

115

1.5

Europe

46

1.0

432

4.5

290

7.1

411

5.2

All Others

32

0.7

41

0.4

20

0.5

42

0.5

 

_______________

(1)  Sales to Mexico are included in North America.

(2)  Total net operating revenues presented above differ from amounts in our IFRS consolidated  financial statements because they do not include revenues from non-steel products (non-steel products include mainly by-products, iron ore, logistics services and cement), which in 2010 represented R$ 4,750  million and in 2009 represented R$ 3,044 million. .

Sales by Product

The following table sets forth our market shares for steel sales in Brazil of hot-rolled, cold-rolled, galvanized and tin mill products for the past three years.  The data of 2008 and 2009 were filled based on IABr (Instituto Aço Brasil) and 2010 considered internal data gathered by CSN.

39 


 

 

 

 

 

CSN Domestic Market Share  

 

 

 

 

 

 

 

 

2010  

 

2009  

 

2008     

 

 

(As a percentage of the market for each product)

Hot-Rolled Products 

 

36.2%

 

33.0%

 

34.0%

Cold-Rolled Products 

 

27.9%

 

29.0%

 

26.0%

Galvanized Products 

 

45.8%

 

47.0%

 

49.0%

Tin Mill Products 

 

100.0%

 

98.0%

 

99.0%

 

 Sales by Industry

We sell our steel products to manufacturers in several industries.  Following is a breakdown of our domestic shipments by volume for the last three years among our market segments:

Sales by Industrial Segment in Brazil

 

 

2010

 

2009

 

2008

 

 

(In percentages of total domestic volume shipped)

Distribution 

 

43.6% 

 

38.9% 

 

44.7%

Packaging 

 

12.7% 

 

15.4% 

 

15.1%

Automotive 

 

21.3% 

 

20.6% 

 

19.6%

Home Appliances/OEM 

 

11.6% 

 

14.6% 

 

12.1%

Construction 

 

10.8% 

 

10.5% 

 

8.5%

 

        We believe we have a particularly strong domestic and export position in the sale of tin mill products used for packaging.  Our customers for these products include some of the world’s most important food processing companies, as well as many small and medium-sized entities.  We also maintain a strong position in the sale of galvanized products for use in the automobile manufacturing, construction and home appliance industries in Brazil and abroad, supplied by CSN Porto Real and CSN Paraná.  No single customer accounts for more than 10% of our net operating revenues.

For further information on steel sales, see “Item 5A.  Operating Results - Results of Operations - Year 2010 Compared to Year 2009 – Net Operating Revenues”.

Seasonality

The seasonality item was not identified in the Company activity, as out production is continuous during the year.

Iron Ore

Iron ore products are commercialized by our commercial team located in Brazil and overseas.  In Europe (Portugal) and Asia (Hong Kong), our offices also include our technical assistance management.  These three marketing units allow us to stay in close contact with our customers worldwide, understand the environment where they operate, monitor their requirements and provide all necessary assistance in a short period of time.  Domestic sales, market intelligence analysis, planning and administration of sales are handled from Brazil by the staff in our Nova Lima office, which is located approximately 70 km from the Casa de Pedra mine, in the State of Minas Gerais.

We supply our iron ore to the steel industry and our main targets are the Brazilian, European, Middle Eastern and Asian markets.  Prevailing and expected levels of demand for steel products directly affect demand for iron ore.  Demand for steel products is correlated to many factors, such as GDP, global manufacturing production, urbanization, civil construction and infrastructure spending.

We believe our competitiveness has been improved by our customer service and market intelligence.  It is paramount for us to have a clear understanding of our customers’ businesses in order to address their needs, surpass their expectations and build long-term relationships.  We have a customer-oriented marketing policy and specialized local personnel in direct contact with our clients to help determine the mix that best suits each particular customer.

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Iron Ore Sales

The first step to our entry into the international iron ore market was taken in February 2007, with the completion of the first phase of the expansion of our coal seaport terminal in Itaguaí, in the State of Rio de Janeiro, which enabled us to also handle and export iron ore and to load from our own facilities the first shipment of our iron ore products.

In 2010, CSN’s iron ore sales reached 25.3 million tons, a 13% increase compared to 2009 (including 100% of our investee Namisa). According to our consolidated financial statements, total mining revenue increased by 84% over the year, due to rising iron ore prices as well as the increase in sales volume. The share of mining revenue in CSN's total net revenue increased from 24% in 2010 to 17% in 2009.

In 2010, the Asian markets accounted for 61% of our sales – of which 34% correspond to China and 27% to other Asian countries – followed by the Middle East (19%) and Europe (14%). While 83% of our sinter feed and 56% of our lump ore were directed to Asia, 90% of our pellet feed and 66% of our concentrated were consumed by Europe and the Middle East.

This result was notably influenced by world economic recovery in 2010. All of our major markets – Asia, Europe, Middle East and Domestic Market – had significant GDP increases, after slowdowns or even decreases experienced in 2009. We expect the iron ore market to maintain a bullish trend supported by growing emerging market demand, high cost Chinese production, and infrastructure bottlenecks for low cost producers. The continued urbanization process in many regions as India, Middle East, Latin America and China should support this tendency.

As global iron ore markets are highly competitive, we focus on our flexibility, reliability and efficient manner of supplying iron ore to the world market.

Through our marketing offices, we have long term relationship with most players of the steel industry in China, Japan, Taiwan, South Korea, Europe and Brazil.

For further information on iron ore sales, see “Item 5A.  Operating Results - Results of Operations - Year 2010 Compared to Year 2009 – Net Operating Revenues.”

Insurance

We and our subsidiaries maintain several types of insurance policies. These insurances are contracted in line with the risk management of our business and attempt to follow the market practices for similar activities. Coverage in such policies encompasses domestic, international, import and export cargo transport (by road, rail sea or air), carrier liability, life insurance, personal accident, health, auto insurance, D&O, general liability, erection risks, boiler coverage, export credit insurance, surety, ports and terminal liabilities. The coverage in these policies may be not sufficient to all risks we are exposed to.

We have insurance policy to cover operational risks, material damage and loss of profits as of March 23, 2011, to March 22, 2012, for a total insured value of R$ 850 million (out of a total risk amount of R$ 25.1 billion), applicable to the following CSN’s branches and subsidiaries: Presidente Vargas Steelworks, Casa de Pedra Mine, Arcos Mine, Paraná Branch, CSN Porto Real (former Galvasud), Coal Terminal TECAR, Container Terminal TECON, Namisa e CSN Cimentos. Such policy was negotiated with domestic and foreigners insurers and reinsurers. Despite this coverage, CSN remains responsible for the first tranche of R$ 170 million in losses (material damages and loss of profits), in excess to the deductibles, and shall be responsible for 64% percent of the losses above this first tranche. We continue to analyze alternatives to further reduce our co-responsibility.

Intellectual Property

We have several technical cooperation agreements with universities and research institutes in order to provide us with special technical reports and advice related to specific products and processes.  In addition to several patents previously approved by the Brazilian National Institute of Industrial Property (Instituto Nacional da Propriedade Industrial), in 2010 we requested the granting of 3 new patents on the field of product applications.

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'Competition in the Steel Industry

Both the worldwide and the Brazilian steel markets are intensely competitive.  The primary competitive factors in these markets include quality, price, payment terms and customer service.  Further, continuous advances in materials sciences and resulting technologies have given rise to improvements in products such as plastics, aluminum, ceramics, glass and concrete that permit them to substitute steel for certain purposes.

Competition in the Brazilian Steel Industry

The primary competitive factors in the domestic market include quality, price, payment terms and customer service.  Several foreign steel companies, however, are significant investors in Brazilian steel mills.

The following table sets forth the production of crude steel by Brazilian companies for the years indicated:

 

 

 

 

 

 

 

 

 

 

2010  

 

2009  

 

2008  

 

 

 

 

 

 

 

 

 

Ranking  

 

Production  

 

Ranking  

 

Production  

 

Ranking  

 

Production  

 

 

 

 

(In million tons) 

 

 

 

(In million tons) 

 

 

 

(In million tons) 

Gerdau(1)

 

1

 

7.8

 

1

 

6.1 

 

1

 

8.7 

Usiminas

 

2

 

7.3 

 

2

 

5.6 

 

2

 

8.0 

ArcelorMittal Tubarão

 

3

 

6.0 

 

3

 

5.3 

 

3

 

6.2 

CSN

 

4

 

4.9 

 

4

 

4.4 

 

4

 

5.0 

ArcelorMittal Aços Longos 

 

-(2)

 

 

5

 

3.2 

 

5

 

3.5 

Others 

 

-(2)

 

 

 

 

1.9 

 

 

 

2.3 

Total  

 

 

 

32.8  

 

 

 

26.5  

 

 

 

33.7  

Source:  IABr

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)       Data from Aços Villares have been merged into data from Gerdau.  

(2)       Data not available

 

Competitive Position — Global

During 2010, Brazil maintained its place as the largest producer of crude steel in Latin America, with a production output of 32.8 million tons and a 2.3% share of total world production, according to data from Instituto Aço Brasil (IABr).  In 2010, Brazil was the ninth largest steel producer globally, accounting for approximately two-thirds of total production in Latin America, approximately twice the size of Mexico’s and approximately 40% of U.S. steel production, according to data from the World Steel Association, or WSA.  According to IABr Brazilian exports in 2010 amounted to 9.0 million tons of finished and semi-finished steel products.

We compete on a global basis with the world’s leading steel manufacturers.  We have positioned ourselves in the world market with a product mix characterized by high margin and strong demand, such as, tin mill and galvanized.  We have relatively low-cost and sufficient availability of labor and energy, and own high-grade iron ore reserves that we believe more than meet our production needs.  These global market advantages are partially offset by costs of transporting steel throughout the world, usually by ship.  Shipping costs, while helping to protect our domestic market, put pressure on our export price.  To maintain our position in the world steel market in light of the highly competitive international environment with respect to price, our product quality and customer service must be maintained at a high level.  We have continually monitored the quality of our products by measuring customer satisfaction with our steel in Europe, Asia and the Americas.  See “Item 4B.  Business Overview—Government Regulation and Other Legal Matters—Proceedings Related to Protectionist Measures” for a description of protectionist measures being taken by steel-importing countries that could negatively impact our competitive position.

Competitive Advantages of the Brazilian Steel Industry

Brazil’s principal competitive advantages are its abundant supply of low-cost, high-grade iron ore and energy resources.  Brazil also benefits from a vast internal market with a large growth potential, a privatized industry making investments in plant and equipment, and deep water ports that allow the operation of large ships, which facilitates access to export markets.

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Brazilian domestic steel prices have historically been higher than its export price. However, in 2010, due to lower demand in mature markets, the appreciation of the real  against U.S. dollar and tax incentives, imported steel products caused Brazilian steel producers to adjust prices closer to export price levels in order to maintain competitiveness.

Government Regulation and Other Legal Matters

Environmental Regulation

We are subject to Brazilian federal, state and municipal environmental laws and regulations governing air emissions, waste water discharges, and solid and hazardous waste handling and disposal.  We are committed to controlling the substantial environmental impact caused by our steelmaking, mining, cement and logistics operations, in accordance with international standards and in compliance with environmental laws and regulations in Brazil.  We believe we are currently in substantial compliance with applicable environmental requirements.

The Brazilian Federal Constitution provides both the federal and state governments authority to enact environmental protection laws and issue regulations under such laws.  In addition, we are subject to municipal environmental laws and regulations.  While the Brazilian government has authority to promulgate environmental regulations setting forth minimum standards of environmental protection, state and local governments have the power to enact more stringent environmental regulations.  Most of the environmental regulations in Brazil are thus at the state and local level complemented by a current process of regulations reviews and new propositions at the federal level.  The environmental regulations of the State of Rio de Janeiro, in which the Presidente Vargas steelworks is located, are plant-specific.  Thus, specific goals and standards are established in operating permits or environmental accords issued to each company or plant.  These specific operation conditions complement the standards and regulations of general applicability and are required to be observed throughout the life of the permit or accord.  The terms of such operating permits are subject to change and are likely to become stricter.  All of our facilities currently have operating permits.

In 2010, we requested and obtained several emissions permits and renewals of environmental permits, both for current operations and for the development of new projects regarding steel and cement manufacturing, iron ore and limestone mining and logistics, including:  (i) the expansion of the Casa de Pedra mine; (ii) the construction of the Transnordestina Railroad, to explore railway transportation in the Northeastern region of Brazil; (iii) the operation of a cement mill at Volta Redonda; and (iv) the expansion of the Solid Bulks Terminal of Itaguaí Port, in the State of Rio de Janeiro, or TECAR, to 45 million tons per year.

Environmental Expenditures and Claims

Promoting responsible environmental and social management is part of our business.  We prioritize processes and equipments that offer the most modern and reliable technologies on environmental risks monitoring and control.  We operate a corporate environmental department managed under an Environmental Management System, or EMS, compliant with ISO 14001:2004 requirements.  In addition, we have a factory committee for environmental management composed of professionals from all departments of CSN’s units.  This factory committee usually meets every week to discuss any problem and to identify risks and aspects of the operations in which the group can act pro-actively, in order to prevent possible environmental harm.

Since our privatization, we have invested heavily in environmental protection and remediation programs.  We had environmental expenditures (capitalized and expensed) of R$336.0 million in 2010, R$290.5 million in 2009 and. R$330.7 million in 2008

Our investments in environmental projects during 2010 were related mainly related to:  (i) operation, maintenance and retrofit of environmental control equipments; (ii) development of environmental studies for permit applications and (iii) studies, monitoring and remediation of environmental liabilities due to prior operations, especially before our privatization.  In 2010, we had a total of R$336.0 million in environmental expenditures, of which R$116.2 million was capital expenditures and R$219.8 million was operational expenditures.

In 2010, we signed with the Rio de Janeiro State government a Term of Undertaking, or TAC, that requires investments of R$260.0 million in our Presidente Vargas steelworks for the next 3 years.  This TAC preview new investments and studies to retrofit our environmental control equipments.  Our main environmental claims on December 31, 2010 were associated with clean-up obligations at former coal mines decommissioned in 1989 in the state of Santa Catarina; legal environmental compensation projected for new projects at the States of Minas Gerais and Rio de Janeiro; and clean-up obligations due to previous operations in our Presidente Vargas steelworks.  We do not include in our reserves environmental liabilities related to ERSA, as these are contractually supported by its seller.

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We record a reserve for remediation costs and environmental lawsuits when a loss is probable and the amount can be reasonably estimated.  As of December 31, 2010, we had provisions for environmental liabilities in the total amount of R$278.1 million, as compared to R$ 116.5 million as of December 31, 2009, which we believe are sufficient to cover all probable losses. For further information, see Note 22 to our consolidated financial statements included in “Item 18.  Financial Statements.”

Brazil – mining regulation

Under the Brazilian Constitution, all mineral resources in Brazil belong to the federal government.  The Brazilian Constitution and Mineral Code impose various regulatory restrictions on mining companies relating to, among other things:

·         the manner in which mineral deposits must be exploited;

·         the health and safety of workers and the safety of residential areas located near mining operations;

·         the protection and restoration of the environment;

·         the prevention of pollution; and

·         the support of local communities where mines are located.

Mining companies in Brazil can only prospect and mine pursuant to prospecting authorizations or mining concessions granted by the National Department of Mineral Production (Departamento Nacional de Produção Mineral), or DNPM, an agency of the Ministry of Mines and Energy of the Brazilian Government.  DNPM grants prospecting authorizations to a requesting party for an initial period of three years.  These authorizations are renewable at DNPM’s discretion for another period of one to three years, provided that the requesting party is able to show that the renewal is necessary for proper conclusion of prospecting activities.  On-site prospecting activities must start within 60 days of official publication of the issuance of a prospecting authorization.  Upon completion of prospecting activities and geological exploration at the site, the grantee must submit a final report to DNPM.  If the geological exploration reveals the existence of a mineral deposit that is economically exploitable, the grantee has one year (which DNPM may extend) from approval of the report by DNPM to apply for a mining concession or to transfer its right to apply for a mining concession to an unrelated party.  When a mining concession is granted, the holder of the concession must begin on-site mining activities within six months.  DNPM grants mining concessions for an indeterminate period of time lasting until the exhaustion of the mineral deposit.  Extracted minerals that are specified in the concession belong to the holder of the concession.  With the prior approval of DNPM, the holder of a mining concession can transfer it to an unrelated party that is qualified to own concessions.  Under certain circumstances, mining concessions may be challenged by unrelated parties.

Mining Concessions

Our mining activities at Casa de Pedra mine are performed based on a Manifesto de Mina, which gives us full ownership over the mineral deposits existing within our property limits.  Our mining activities at Engenho and Fernandinho mines are based on a concession by the Ministry of Mines and Energy, which grants us the right to exploit mineral resources from the mine for an indeterminate period of time lasting until the exhaustion of the mineral deposit.  Our mining activities at the Bocaína mine are based on a concession under the same conditions.  See “Item 4D.  Property, Plant and Equipment” for further information on our reserves at Casa de Pedra mine and resources at Fernandinho and Engenho mines.

 

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Table of Contents

 

Mineral Rights and Ownership

 

Our mineral rights for Casa de Pedra mine include the mining concession, beneficiation plant, roads, loading yard and railway branch and are duly registered with the National Department of Mineral Production (Departamento Nacional de Produção Mineral - DNPM).  We have also been granted by DNPM easements in 15 mine areas located in the surrounding region, which are not currently part of Casa de Pedra mine, and hold title to all our proved and probable reserves.

In addition, we have obtained and are in compliance with all licenses and authorizations for our operations and projects at Casa de Pedra mine.

The exploitation in Casa de Pedra mine are subject to mining lease restrictions, which were duly addressed in our iron ore reserve calculations.  Quality requirements (chemical and physical) are the key “modifying factors” in the definition of ore reserves at Casa de Pedra and were properly accounted for by the CSN mine planning department.

The Brazilian government charges us a royalty known as the Financial Compensation for Exploiting Mineral Resources (Compensação Financeira pela Exploração de Recursos Minerais), or CFEM, on the revenues from the sale of minerals we extract, net of taxes, insurance costs and costs of transportation.  The current annual rates on our products are:

·         2% for iron ore, kaolin, copper, nickel, fertilizers and other minerals;

·         3% on bauxite, potash and manganese ore; and

·         1% on gold.

The Mineral Code and ancillary mining laws and regulations also impose other financial obligations.  For example, mining companies must compensate landowners for the damages and loss of income caused by the use and occupation of the land (either for exploitation or exploration) and must also share with the landowners the results of the exploration (in a rate of 50% of the CFEM).  Mining companies must also compensate the government for damages caused to public lands.  A substantial majority of our mines and mining concessions are on lands owned by us or on public lands for which we hold mining concessions.

Antitrust Regulation

We are subject to various laws in Brazil which seek to maintain a competitive commercial environment in the Brazilian steel industry.  For instance, under Law No. 8,884/94, the Lei de Defesa da Concorrência, or Competition Defense Law, the Secretaria de Direito Econômico of Brazil’s Ministry of Justice has broad authority to promote economic competition among companies in Brazil, including the ability to suspend price increases and investigate collusive behavior between companies.  In addition, if the Brazilian anti-trust agency (Conselho Administrativo de Defesa Econômica), or CADE, determines companies have acted collusively to raise prices, it has the authority to impose fines on the offending companies, prohibit them from receiving loans from Brazilian government sources and bar them from bidding on public projects.  In addition, CADE has the authority to dissolve mergers and to require a company to divest assets should it determine that the industry in which it operates is insufficiently competitive.

For further antitrust-related information, see “Item 8A. Consolidated Statements and Other Financial Information-Legal Proceedings”.

Proceedings Related to Protectionist Measures

Over the past several years, exports of steel products from various countries and companies, including Brazil and us, have been the subject of anti-dumping, countervailing duty and other trade related investigations from importing countries.  These investigations resulted in duties that limit our access to certain markets.  Despite the imposed limitations, our exports have not been significantly affected, as we were able to re-direct our sales from restricted markets to other markets, and also because the volume of exports or products available for exports has been decreasing as a result of the increased demand from our domestic market and thus present participation of exports in our total sales was significantly reduced.

 

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Below are summaries of the protectionist measures to which our exports are subject.

United States

Anti-dumping (AD) and Countervailing Duties (CVD).  In September 1998, U.S. authorities initiated anti-dumping and countervailing duties investigations on hot-rolled steel sheet and coil imported from Brazil and other countries.  In February 1999, the U.S. Department of Commerce, or DOC, reached a preliminary determination on the anti-dumping and countervailing duties margins.  We were found to have preliminary margins of 50.66% for anti-dumping, and of 6.62% for countervailing duties.  In July 1999, Brazil and the United States signed a five-year suspension agreement, suspending the anti-dumping investigation and establishing a minimum price of US$327 per ton (delivery duty paid), subject to quarterly review by the DOC.  In February 2002, the U.S. government terminated the anti-dumping suspension agreement and reinstated the anti-dumping margin of 41.27%.  Also in July 1999, the Brazilian and U.S. governments signed a suspension agreement related to the countervailing duties investigation, which limited exports of hot-rolled sheets and coils from Brazil to 295,000 tons per year.  At the request of the Brazilian government, the agreement was terminated in September 2004.  Upon the termination of this agreement, countervailing duties of 6.35% became effective in September 2004, to be applied to imports of hot-rolled products from Brazil.  In April 2004, we requested the DOC to conduct an administrative review of the anti-dumping investigation.  Through this review, in April 2005, we obtained a favorable preliminary determination of “zero” margin of dumping from the DOC.  Final determination was issued in October 2005 and the “zero” margin of dumping preliminarily found by the DOC was confirmed.

Simultaneously to the administrative review, we participated in an anti-dumping and countervailing duties expiry review which involved the exports of hot-rolled sheet and coils to the U.S. The expiry review was jointly developed by the International Trade Commission and the DOC, through the Import Administration- I.A., and  was initiated in May 2004. A final determination was rendered in April 2005, retaining the anti-dumping and countervailing duties orders until May 12, 2010.

In October 2005, the DOC initiated an administrative review of the investigation of subsidies and countervailing duties involving hot-rolled products.  When the petitioners denied their participation in the review, it was terminated by the DOC in February 2006.

In  April 2010, an anti-dumping and countervailing duties expiry review was initiated jointly developed by the DOC and ITC through the IA.  In November 2010, the DOC issued the final results of the CVD sunset review.  Although it was decided that subsidization will continue or recur if the order is revoked, the DOC found that the likely margin of subsidization would be zero.  The final determination for the AD and CVD orders are expected for June 2011.

Canada

Anti-dumping.  In January 2001, the Canadian government initiated an anti-dumping investigation process involving hot-rolled sheets and coils exported from Brazil.  The investigation was concluded in August 2001, with the imposition by Canada of an anti-dumping tax of 26.3% on imports of those products from Brazil, with minimum prices to be observed.  In August 2002, the Canada Border and Services Agency, or the CBSA, initiated a revision of the values previously established and, in March 2003, the revised values were issued.  These values are adjusted whenever there is an adjustment of the Canadian domestic prices.  In February 2005, the CBSA initiated a reinvestigation of hot-rolled sheets and coils.  We did not participate in this investigation.

In December 2005, the Canadian International Trade Tribunal, or CITT, initiated an expiry review of hot-rolled products, in which we participated.  A final determination was issued in August 2006, determining the continuation of the anti-dumping order for hot-rolled products.  As a result, exports of our hot–rolled products to Canada are subject to anti-dumping duties of 77%.

In October 2010, the Canadian International Trade Tribunal, or CITT, initiated an expiry review of hot-rolled products, in which CSN decided not to participate.

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Argentina

 

Anti-dumping – hot-rolled products.  Argentina commenced an anti-dumping investigation of hot-rolled products from Brazil, Russia and Ukraine in October 1998.  In April 1999, the Argentinean government applied a provisional anti-dumping order on Brazilian imports, fixing a minimum price of US$410 per ton FOB (free on board), for four months ending in August 1999.

In December 1999, the Argentine government accepted a suspension agreement of the anti-dumping measures, providing for quotas of 36,000 tons for the first year, 38,000 tons for the second and 39,000 tons for the third, fourth and fifth years, and minimum prices from US$325 to US$365 per ton CFR FO (cost, insurance and freight, free out), subject to quarterly adjustments based on the publication of the Argentine National Institute of Statistics and Census, or INDEC.

In December 2004, exporters were notified of the revision of resolution No. 1,420/1999 from the Economic, Work and Public Services Ministry of Argentina relating to the export of Brazilian hot-rolled products.  In January 2005, an expiry review of the anti-dumping process was initiated to analyze the maintenance, modification and/or derogation of the action of the administrative authority of the Argentinean government.  We participated in this review.

In June 2006, Argentina published resolution No. 412/2006 terminating the anti-dumping investigation for hot-rolled products from Brazil, Russia and Ukraine, determining a margin of 147.95% to Brazil. The application of anti-dumping duties was replaced by a suspension agreement set forth in that same resolution, valid for five years from its publication, on June 6, 2006.

Overview of Steel Industry

World Steel Industry

The worldwide steel industry comprises hundreds of steelmaking facilities divided into two major categories, integrated steelworks and non-integrated steelworks, characterized by the method used for producing steel.  Integrated plants, which accounted for approximately 66% of worldwide crude steel production in 2008, typically produce steel by smelting in blast furnaces the iron oxide found in ore and refining the iron into steel, mainly through the use of basic oxygen furnaces or, more rarely, in electric arc furnaces.  Non-integrated plants (sometimes referred to as mini-mills), which accounted for approximately 34% of worldwide crude steel production in 2008, produce steel by melting scrap metal, occasionally complemented with other metallic materials, such as direct reduction iron or hot-briquette iron, in electric arc furnaces.  Industry experts expect that a lack of a reliable and continuous supply of quality scrap metal, as well as the high cost of electricity, may restrict the growth of mini- mills.

Steel continues to be the material of choice in the automotive, construction, machinery and other industries.  Notwithstanding potential threats from substitute materials such as plastics, aluminum, glass and ceramics, especially for the automotive industry, steel continues to demonstrate its economic advantage.  From 1990 through 2005, total global crude steel production ranged between approximately 770 million and 1.1 billion tons per year.  In 2008, it reached 1.33 billion tons, representing a 1.2% decrease as compared to 2007.  In 2010, worldwide production was 1.41 billion tons, an increase of 15% compared to 2009 and a new record for global steel industry.

China’s crude steel production in 2010 reached 627 million tons, an increase of 9.3% as compared to 2009.  Production volume in China has almost tripled in  in  eight years, from 222 million tons in 2002.  China’s share of world steel production declined from 47% in 2009 to 44% in 2010, what is consequence of steelmaking recovery in rest of world (-21% in 2009 and +20% in 2010).

Asia produced  898 million tons of crude steel in 2010, representing 63.5% of world total steel production and an increase of 11.6% as compared to 2009.  Overall, steel production increased  in Europe, North America, South America and Commonwealth of Independent States in 2010.

Brazilian Steel Industry

Since the 1940s, steel has been of vital importance to the Brazilian economy.  During the 1970s, strong government investments were made to provide Brazil with a steel industry able to support the country’s industrialization boom.  After a decade of little to no investment in the sector in the 1980s, the government selected the steel sector as the first for privatization commencing in 1991, resulting in a more efficient group of companies operating today.

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A Privatized Industry

During almost 50 years of state control, the Brazilian flat steel sector was coordinated on a national basis under the auspices of Siderbrás, the national steel monopoly.  The state had far less involvement in the non-flat steel sector, which has traditionally been made up of smaller private sector companies.  The larger integrated flat steel producers operated as semi autonomous companies under the control of Siderbrás and were each individually privatized between 1991 and 1993.  We believe that the privatization of the steel sector in Brazil has resulted in improved financial performance, as a result of increased efficiencies, higher levels of productivity, lower operating costs, a decline in the labor force and an increase in investment.

Domestic Demand

Historically, the Brazilian steel industry has been affected by substantial fluctuations in domestic demand for steel.  Although national per capita consumption varies with GDP, fluctuations in steel consumption tend to be more pronounced than changes in economic activity.  Per capita crude steel consumption in Brazil has increased from 95 kilograms per capita in 1999 to 150 kilograms in 2010, which is considered low when compared to levels in developed countries such as the United States and Germany.

From 2005 to 2007, despite a good global conjuncture, the Brazilian economy exhibited an average growth GDP of 4.4%.  Since September 2008, overall global economic activity has slowed significantly, which impacted our fourth quarter results.  Apparent steel consumption in 2008 and 2009 were 24.0 million tons and 18.6 million tons, respectively.  In 2010, the internal demand grew 43%, to 26.6 million tons.

The Brazilian flat steel sector is shifting production to the higher value-added consumer durable sector.  This sector is highly dependent on domestic consumer confidence, which, in turn, is affected by economic policies and certain expectations of the current government administration.  Over the past years, automobile manufacturers made significant investments in Brazil.  In 2009 and 2010, the vehicles production recovered from the 2008 financial crisis in response of government incentives like tax cuts.

Market Participants

According to IBS, the Brazilian steel industry is composed of 26 mills managed by 9 corporate groups, with an installed annual capacity of approximately 47 million tons, producing a full range of flat, long, carbon, stainless and specialty steel.  For information on the production by the largest Brazilian steel companies, see “Item 4B.  Business Overview—Competition—Competition in the Brazilian Steel Industry.”

Capacity Utilization

Mean Brazilian nominal capacity in 2010 was estimated at 42 million tons (the 5 million tons CSA facility started production in the end of the year), what means that local steel industry operated at approximately 78%, higher than 63.4% of nominal crude steel capacity during 2009.

Exports/Imports

Brazil has been playing an important role in the export market, primarily as an exporter of semi-finished products.  The Brazilian steel industry has taken several steps towards expanding its capacity to produce value-added products.  Brazil’s exports of semi-finished steel products reached 5.7 million tons in 2008 and 4.6 million tons in 2009, which represented 62% and 54% of total steel exports for each period, respectively.  In 2010, slabs and billets exports summed 5.3 million tons (58% of tons exported in the year).

In 2010, Brazilian steel exports totaled 9.0 million tons, representing 38% of total Brazilian steelmakers sales (domestic plus exports) and accounting for US$ 5.8 billion in export earnings for Brazil.  Over the last 20 years, the Brazilian steel industry has been characterized by a structural need to export, which is demonstrated by the industry’s supply demand curve.  The Brazilian steel industry has experienced periods of overcapacity, cyclicality and intense competition during the past several years.  Demand for finished steel products, as measured by domestic apparent consumption, has consistently fallen short of total supply (defined as total production plus imports).  In 2010, supply totaled 32.8 million tons, as compared to apparent consumption of 26.6 million tons.

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Steel imports climbed 154% in 2010, to 5.93 million tons (22% of apparent domestic consumption) as compared to 2.3 million tons in 2009 (8.6% of steel consumption), according to IBS.

4C.  Organizational Structure

We conduct our business directly and through subsidiaries.  For more information on our organizational structure, see Note 2(b) to our consolidated financial statements included in “Item 18.  Financial Statements.”

4D.  Property, Plant and Equipment

Our principal executive offices are located in the city of São Paulo, the State of São Paulo at Avenida Brigadeiro Faria Lima, 3,400, 20th floor (telephone number 55-11-3049-7100), and our main production operations are located in the city of Volta Redonda, in the State of Rio de Janeiro, located approximately 120 km from the city of Rio de Janeiro.  Presidente Vargas steelworks, our steel mill, is an integrated facility covering approximately 4.0 square km and located in the city of Volta Redonda in the State of Rio de Janeiro.  Our iron ore, limestone and dolomite mines are located in the State of Minas Gerais, which borders the State of Rio de Janeiro to the north.  Each of these mines is within 500 km of, and is connected by rail and paved road to, the city of Volta Redonda.

The table below sets forth certain material information regarding our property as of December 31, 2010.

 

 

 

 

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Facility  

 

Location  

 

Size  

 

Use  

 

Productive 
Capacity  

 

Title  

 

Encumbrances  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Presidente Vargas steelworks 

 

Volta Redonda, State of Rio de Janeiro 

 

4.0 square km 

 

steel mill 

 

5.6 million tons per year 

 

owned 

 

None 

 

CSN Porto Real (former GalvaSud)

 

Porto Real, State of Rio de Janeiro 

 

0.27 square km 

 

galvanized steel producer 

 

350,000 tons per year 

 

owned 

 

mortgage(1)(2)

 

CSN Paraná 

 

Araucária, State of Paraná 

 

0.98 square km 

 

galvanized and pre-painted products 

 

100,000 tons of pre- painted product and 220,000 tons of pickled hot-rolled coils 

 

owned 

 

None 

 

Metalic 

 

Maracanaú, State of Ceará 

 

0.10 square km 

 

steel can manufacturer 

 

900 million cans per year 

 

owned 

 

mortgage(3)

 

Prada 

 

São Paulo, State of São Paulo and Uberlândia, State of Minas Gerais 

 

SP – 0.14 square km; 
MG – 0.02 square km; 

 

steel can manufacturer 

 

1 billion cans per year 

 

owned 

 

None 

 

CSN, LLC 

 

Terre Haute, Indiana, USA 

 

0.78 square km 

 

cold-rolled and galvanized products 

 

800,000 tons of cold-rolled products and 315,000 tons per year of galvanized products 

 

owned 

 

None 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lusosider 

 

Seixal, Portugal 

 

0.39 square km 

 

hot-dip galvanized, cold-rolled and tin products 

 

240,000 tons of galvanized products and 50,000 tons of cold-rolled products per year 

 

owned 

 

None 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prada 

 

Mogi das Cruzes, State of São Paulo 

 

0.20 square km 

 

distributor 

 

730,000 tons per year 

 

owned 

 

None 

 

 

 

 

 

 

 

 

 

 

 

 

 

Casa de Pedra mine 

 

Congonhas, State of Minas Gerais 

 

44.57 square km 

 

iron ore mine 

 

60.0 mtpy(4)

 

owned(5)

 

None 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engenho mine(6)

 

Congonhas, State of Minas Gerais 

 

2.87 square km 

 

iron ore mine 

 

5.0 mtpy

 

concession 

 

None 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fernandinho mine(6)

 

Itabirito, State of Minas Gerais 

 

1.84 square km 

 

iron ore mine 

 

2.0 mtpy 

 

concession 

 

None 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bocaina mine 

 

Arcos, State of Minas Gerais 

 

4.11 square km 

 

limestone and dolomite mines

 

4.0 mtpy 

 

concession 

 

None 

ERSA mine 

 

Ariquemes, State of Rondônia 

 

0.015 square km 

 

 tin mine 

 

1,800 tons 

 

concession 

 

None 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thermoelectric co- generation power plant 

 

Volta Redonda, State of Rio de Janeiro 

 

0.04 square km 

 

power plant 

 

238 MW 

 

owned