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Brazil's Nerve of Steel
AmÚricas / May-June 2001

By Larry Luxner

On Jan. 16, 1901, German immigrant JoŃo Gerdau opened a tiny nail factory in the southern Brazilian state of Rio Grande do Sul -- marking the birth of what would one day rank among Latin America's largest steelmakers.

This month, as Gerdau's heirs officially mark the company's 100th anniversary, Gerdau S.A. has much to celebrate.

Not only is it the world's largest nail manufacturer, the family-owned conglomerate also ranks as Brazil's largest producer of long steel products and steel shapes for construction. In 2000, the company reported consolidated gross revenues of $3.18 billion -- up 54% from the year before -- and net profits of $207.6 million. While CSN is the market leader in flat products, Gerdau has 50% of the domestic market in long steel products, with Brazil representing 60% of company sales by volume and 75% by dollar value.

Overall, Gerdau S.A. churned out 7.1 million tons of crude steel in 2000 -- 63% of that from its Brazilian operations and 37% of it coming from Gerdau's subsidiaries in Argentina, Canada, Chile, Uruguay and the United States.

"We like Gerdau very much," said Santander steel-industry analyst Rodrigo Marques in SŃo Paulo. "Their management team is pretty strong, and Gerdau has one of the best-defined long-term strategies of all Brazilian steelmakers in terms of where they'll be in the next five to 10 years."

President and CEO Jorge Gerdau Johannpeter, a fourth-generation steelmaker, says he's proud of what he calls the "strong professionalism" that has characterized his family business since it began life as Companhia Fßbrica de Pregos Pontas de Paris.

"I started at Gerdau when I was 18 years old, studying at night and working during the day so I could learn the business from top to bottom," said the executive, switching easily between Portuguese and German-accented English. "At that time, our capacity was 60,000 tons a year. Now we have a capacity of 7.5 million tons."

Gerdau, 63, runs the company along with brothers Frederico, Klaus and Germano, Together, they employ 12,500 people worldwide, including 8,500 workers in 10 steel mills throughout Brazil.

A visit to one of them, Gerdau Ašos Finos Piratini, showed some 1,050 workers manufacturing rolled, forged and cold-finished steel products, with 95% of production going for the internal market and the remaining 5% exported to Argentina and other Mercosur countries.

Francisco Deppermann Fortes, the plant's human resources manager, says the factory was established by the State of Rio Grande do Sul in 1961, but didn't begin production until 1973. By 1990, the steel mill was losing $1 million a month, and two years later, Gerdau bought it in a privatization auction for $107.4 million -- more than 150% above the minimum bid. Since then, the company has poured an additional $150 million into the sprawling plant, which is located in Charqueadas, a 45-minute drive from Gerdau headquarters in P˘rto Alegre.

"When the state owned this factory, there were 2,000 workers. Gerdau cut employment in half and now produces double the amount of steel," says Deppermann. "Since 1992, our productivity has jumped from 70 to 271 tons per employee per year."

Yet Ašos Finos Piratini is unique within the Gerdau group in that 75% of its production is destined for Brazil's booming auto industry. Overall, 60% of total company sales go to the domestic construction industry, another 30% for the auto industry and other industrial customers, and the remaining 10% for agribusiness. Interestingly, Gerdau also has its hand in forestry and cattle, though such ventures account for less than 2.5% of total company revenues.

"Early on, we began to be concerned about globalization," said the CEO. "We saw before the others that Brazil would soon open its economy, and that this would allow us to develop our capacity."

Gerdau, who's also vice-president of the Instituto Brasileiro de Siderurgia, a trade industry lobby, predicts Brazil's steel industry will receive investments of $12 billion between now and 2007, boosting installed capacity to 40 million tons per year. During 2001 alone, domestic demand for steel should jump by 6-7%, well beyond the year's projected GDP growth of 4.5%.

At the same time, Gerdau is pursuing opportunities outside of Brazil. Since 1980, when it purchased Sider˙rugica Laisa S.A. in Uruguay, Gerdau has raised its profile throughout the Americas. At present, it owns 100% of Canada's Courtice Steel Inc. and Manitoba Rolling Mills; 100% of Chile's Sider˙rgica AZA; 73% of Argentina's Sipsa; 38% of another Argentine company, Sipar, and 75% of Florida-based AmeriSteel -- the second-largest U.S. producer of concrete reinforcing bars and third in bars and profiles.

About the only thing that concerns Gerdau is how long its stretch of good luck will last. "Two years ago, we ranked 46th among international steel producers. Today we are 25th," said the boss. "Even though we have a good position domestically, there are lots of mergers in the steel industry. We must be in a better position to compete internationally."

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