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Measures taken by Steel Mills against the Coronavirus

Plants are evaluating what actions should be taken and, if the crisis continues, the shutdown of blast furnaces is not ruled out.

Among all industries, the steel industry is definitely the one that will stop producing only as a last resort – which still does not include the current coronavirus crisis. Faced with the stoppage of the productive sector, the steel mills have not received new orders and, every day, the horizon is even more uncertain. The containment measures range from the postponement of new investments to the most drastic, such as the possible shutdown of the furnaces.

While the future looks disturbing, with the possibility of a recession in the global economy, companies are reformulating their strategic planning. Gerdau announced this Tuesday, 24th, that it will postpone new investment initiatives (Capex) in 2020, given the worsening of the new coronavirus.

In a relevant fact for the market, the company highlighted that the cash position of 6.3 billion reais, 52% of which in dollars, and committed credit lines of 4 billion reais, allow the company to be “prepared for this moment of volatility .”

In Brazil, the manufacturing operations of the Gaucho group remain unchanged, while in Peru and Argentina they are paralyzed by government restrictions. In the United States, the production of special steels is at a standstill due to the drop in demand from automakers, which have stopped production.

The same picture can be observed in Brazil. Almost 50 of the 67 vehicle factories in the country have paralyzed their operations as a way to combat the spread of covid-19. Automakers are the steelmakers' main customers, but manufacturers of white goods, machinery and equipment, the oil and gas industry, among others, also have high demand and are stopping.

In Cubatão, in Baixada Santista, Usiminas should put practically all the administrative staff in the home office from this Wednesday, 25th, while the laminate production shifts should work normally. There, the inventory portfolio is around 60 days, as the report found.

In Ipatinga, Minas Gerais, the case is even more complex. Crude steel at the unit is produced in blast furnaces, whose shutdowns take months to complete and require very high costs. According to information, until the coronavirus crisis, mining production came from strength to strength. Now, the demand would be contracted until April. “The problem is after that period”, says a person connected to the company.

In the company's management, expectations are growing of a possible shutdown of the blast furnaces, starting with the smallest ones, in case the instability in the economy worsens.

“Usiminas is certainly studying shutting down a blast furnace, although steelmakers are shying away from this option, because it is a decision for months ahead”, says a person close to the company.

The steel group informed, in a relevant fact to the market, the granting of collective vacations to a portion of the staff of the companies Usiminas Mecânica and Soluções Usiminas. It also highlighted the contribution, in up to 30 days, of 394 million reais in its cash, originating in accordance with Previdência Usiminas.

In a note to Exame, the company reinforced that the uncertainties about the evolution of the new coronavirus make it “impossible” to predict, at this moment, the effects on the company's operations. “Usiminas continues to constantly assess the impacts of the situation and any future developments for its operations will be promptly informed to the market and other interested parties.”

At Companhia Siderúrgica Nacional (CSN), which is also heavily dependent on the consumer and capital goods industry, crude steel production continues, for the time being, in Volta Redonda, Rio de Janeiro. According to the Exame report, about 2,000 administrative employees and those in the risk group were removed, but in the area of iron ore reduction, the situation is different: the blast furnace cannot stop.

In a note, CSN states that the company “has followed the recommendations of the Ministry of Health and the competent authorities in the matter.”

As the covid-19 crisis worsens in the country, uncertainties about activity in steel mills grow. Last year, the results of the companies were no longer exuberant, with a drop in profit and revenue.

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In the corridors of companies, teams have already met daily to discuss the next steps with the worsening of the coronavirus crisis. If the stoppage of the economy persists, the possibility of stopping the blast furnaces is great, according to sources close to the steelmakers. The companies reinforce that, for now, the picture remains normal. But the future holds enormous uncertainties. For those who know the activity, stopping an oven is such a bitter medicine that it can spoil the result of an entire year.

Source: Exame - Juliana Estigarribia

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