Venezuelan Steel Pricing — Up, Up and Away…

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Ferrous Metals, Global Trade

Have you ever started a Google search for something and then ended up finding something else more interesting? Unfortunately, this happens to me quite often. Whenever I have a few extra minutes, I head over to sites like Mineweb and read through the headlines. Somewhere in those headlines, I believe there was a story on Ternium — and don’t ask me to find the story because I can’t, nor can I remember why I clicked on the headline. Anyhow… whatever it was, it made me click over to their corporate website only to catch the following in Spanish: “Ternium proporciona información actualizada respecto del proceso de nacionalización de Sidor.”

Hmm…. nacionalizacion? I recognized the company, Sidor, from my old trading days. But this headline could only mean one thing…and I knew it wasn’t good. And there it was in plain text (only this time I converted it to English) — on Tuesday, Ternium, a conglomerate of steel companies operating in the Americas, announced that Chavez’ Decree Law 6058, “became effective today upon its publication on Venezuela’s Official Gazette.” The decree orders Sidor and its subsidiaries to be transformed into state owned enterprises.” Furthermore, the government will own at least 60% of their share capital.

I wish I were the first to report on this, but CNN covered the beginning of the saga a few weeks back. The most shocking piece of the CNN story relates to how much the Chavez government intended to pay to Ternium for a 60% stake in the company. And according to the article, a top government official recently said that Ternium’s majority stake in the steel maker is not worth more than $800 million (514 million euros).

I’m not going to run a napkin calculation but Sidor produces approximately 85% of the country’s 5.5 million tons of steel annually so that leaves 4.67m tons. All of you know what the cost of steel is these days. I’m not going to bother looking at earnings and book value but my hunch is that this offer is quite silly. But not to Chavez who has said, “We have always said that we want to bring these decisions down the best of roads, looking for an agreement, consensus…Win-win, that’s our motto.”

If that isn’t the laugh of the week, what is?

Hasn’t it been proven beyond a shadow of a doubt that nationalization is never in the best interests of the people or the economy? Apparently not. Me thinks Mr. Chavez and Mr. Mugabe have become drinking buddies. And whoa whoa goes the price of steel…

–Lisa Reisman

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