Brazil

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Our Business

How and where we run our steel and mining business.

Our progress

This year saw important progress across our business, where we continued to meet the needs of all our stakeholders.

Action 2020

Action 2020 is ArcelorMittal's commitment to structurally improving profitability and cash flow generation.

Governance

Good corporate governance is about compliance, continuous stakeholder dialogue and being a good corporate citizen.

Fact book

Details of our steel and mining operations, financials, production facilities and shareholder information.

These are tough times for everyone in Brazil, including steelmakers, with the worst recession in decades affecting the livelihoods of millions of people and undermining demand for many of our customers' products. We want to be part of the country's recovery from economic and social turbulence, building on our strong stakeholder relations and a structurally competitive business that is increasingly focused on specialised products that meet specific customer needs.

Jefferson De Paula CEO ArcelorMittal South America Long Products

Employees

18,380

Sales

6.3

(US$ billion)

Ebitda

872

(US$ million)

Steel shipments

10.8

(million tonnes)

Lost time injury frequency rate

0.37

(incidents per million hours worked)

Ebitda contribution to Action 2020

100

(US$ million)

Our 2016 operating environment

Economic recession, political turbulence and drought all contributed to a very challenging operating environment in Brazil in 2016. Falling GDP, rising unemployment, and investigations into state corruption created uncertainty and undermined confidence among manufacturers, consumers, and civil society. Steel demand fell, with decreases in all major sectors, including automotive and construction. However, by the end of 2016 there were tentative signs that confidence was returning, and that demand could recover, albeit from a low base. Key steel market and stakeholder aspects included:

Brazilian GDP fell by over 3%, with productivity falling across most industrial sectors, in the worst recession for more than 30 years.
Year-on-year, *apparent steel consumption fell by an estimated 13.0% to 13.5%.
Demand for steel declined in the automotive, construction, and machinery manufacturing sectors.
Rising unemployment, high household debt and low investment all suppressed consumer confidence.
The impeachment of President Rousseff and ongoing corruption investigations heightened the importance of transparency in business and civil society.
Environmental laws issued in response to the 2015 water crisis in the south east of Brazil remained active, imposing restrictions on water for industrial use.
Drought also increased the cost of energy from hydro-electric power.
Inflation reduced the competitiveness of Brazilian manufacturing versus imports, though it improved the export position.
In Argentina, inflation reached 40% in 2016, putting pressure on wages and other costs.

*Apparent steel consumption is physical deliveries, or sales, of steel products to end users or steel stockists. It differs from real steel consumption, which takes into account changes in steel inventory levels to assess underlying real steel demand.

Group-leading health and safety performance

Our Brazilian segment has consistently improved its health and safety performance in recent years, and in 2016 delivered the best performance in the group. Most importantly no fatalities occurred, and there was also improvement in our lost-time injury frequency rate (LTIFR), which reduced from 0.62 in 2015 to 0.37 in 2016.

Considerable time and effort has been devoted to training and safety programmes, with the new safety initiative, Project Safe Behaviour, playing an integral role in the performance improvement achieved in 2016.

See Outcome 1 for our global approach to safety.

LTIFR

incidents per million hours worked

Color	#8B819E
X-axis	LTIFR
2014	0.89
2015	0.62
2016	0.37
LTIFR

Severity rate

number of days lost to injury per thousand hours worked

Color	#AA9E6E
X-axis	Severity rate
2014	0.05
2015	0.04
2016	0.04
Severity rate

Injuries at an all-time low in Brazil

In 2016, our flat carbon sites in ArcelorMittal Brazil saw injuries fall to an all-time low. According to Ricardo Garcia, vice president for human resources and IT in the region, this is directly linked to a new initiative, Project Safe Behaviour. Determined to drive further maturity within a safety culture that had already achieved impressive progress, our Brazilian colleagues started with strategic meetings with the board of directors. They prepared strategies aimed at generating new preventive behaviours in the organisation, developing further a sense of individual responsibility through ‘ownership’, while also reinforcing collective behaviours. They re-evaluated the health and safety management system tools, developed a work plan, and set up new training sessions with a range of different modules for all managers and supervisors as well as the health and safety and human resources teams. The results? An LTIFR of just 0.12 in 2016, a 56% improvement over 2015, and the lowest in the group.

Despite severe operating conditions, our focus on reducing fixed costs is delivering structural improvements, while increased volumes in our Flat Carbon steel business reflect our efforts to strengthen our relationships with customers and increase the range of specialised, high-added value products we can offer them.

Benjamin Baptista CEO Flat Carbon South America

Transparency has never been more important in Brazil than it is right now. Our commitment to being an open and honest business means we can make a genuine contribution to the social and environmental improvements Brazil needs. This gives us a strong reputation within business and society, an asset which is highly valued by our customers.

Jefferson De Paula CEO ArcelorMittal South America Long Products

Our performance

Recession in Brazil and a range of external factors continued to affect our sales, which decreased by 26.8% to $6.2 billion, primarily due to 17.2% lower average steel selling prices following the depreciation of the Venezuelan Bolivar and the Argentinean peso, and a decrease of 6.8% in our steel shipments to 10.8 million tonnes.

Weaker demand and the closure of our Trinidad and Tobago facility led to a fall in crude steel production of 4.1% to 11.1 million tonnes.

Ebitda

872

(US$ million)

While these factors were offset in part by our ongoing initiatives to improve structural costs under Action 2020, Ebitda declined 29.2% to US$872 million.

Read the full review of Brazil’s operating results.

The value of trust and transparency in turbulent times

The challenges of severe recession and political uncertainty are not, of course, confined to steelmakers. Millions of people in Brazil and across the region are experiencing economic hardship and social disquiet, while many of the manufacturers and fabricators who make up our customer base are suffering from sharp falls in demand.

Our success is intimately linked to theirs, and we are committed to playing our part in helping to build the recovery. Our reputation, and the trust in which we are held, are key to this commitment.

As a result of the ongoing investigations into corruption in Brazil, one of our stakeholders' biggest concerns is transparency in business conduct. Our track record is strong – we introduced our Code for Responsible Sourcing in 2007, we expect all suppliers to commit to this, and we help suppliers with training in their requirements.

We also carry out anti-corruption due diligence on local suppliers.

Our leadership in this field was acknowledged in early 2016 with an invitation to join a new national advisory group aimed at enhancing the business integrity agenda in the country. The respected corruption watchdog, Transparency International (TI), has established a framework for collaboration between business, the public sector and civil society to diagnose and develop a reform agenda for the country, in order to restore business integrity. ArcelorMittal was the first business in Brazil to agree a partnership with TI.

Committed to ethical business in partnership with Transparency International

We expect our new partnership with TI to have a positive impact on our entire production chain, encouraging other companies to also seek better governance and sustainability in business. We have an active compliance structure in place and intend to play a pivotal role in helping our country build a broad consensus on integrity within the business community.

Benjamin Baptista CEO Flat Carbon South America

Building closer relationships with customers

Being trusted by our customers is essential to the success of our Action 2020 plans. From our conversations, we know that they value our reputation; we also know that they have a growing interest in supply chain sustainability assurance, which helps us ensure we are their supplier of choice.

We're focusing on growing closer to customers in other ways too. In 2016, we streamlined our sales processes in order to gain a better understanding of customer needs and direct our R&D efforts to meet them. We've invested in technology that enables us to produce specialised products – at our Acindar plant in Argentina, for instance, a new rolling mill completed in 2016 not only increases the volume of bars we produce for civil construction, but allows us to free up our special bar quality (SBQ) mill to focus on products for the automotive and mining industries. We're also now equipped to produce Usibor® grades, specialised hot stamped steels for safe, lighter-weight carmaking, that help automotive manufacturers meet emissions targets, ready for the gradual recovery in car manufacturing we expect in 2017.

We're helping meet the needs of customers beyond the region too, by exporting specialised steels to be finished by ArcelorMittal mills in the US which are serving the automotive market.

Learn more about Outcome 2.

Achieving structural competitiveness

As part of our Action 2020 focus on costs, we have continued to optimise our operational footprint as well as drive down fixed costs across the business. Regrettably, this has meant the closure of one of our Point Lisas operations in Trinidad and Tobago; we’ve also reduced operations at two further plants, and reduced full-time employees in other parts of the business. We believe these changes were necessary for our business to remain competitive and, while difficult, we worked with employees and their representatives during the process, in line with our policies.

Showing leadership on water

The south east of Brazil has experienced an unprecedented, and unexpected, drought in recent years, placing constraints on the availability of water for industry and indirectly leading to a spike in energy costs in a country heavily dependent on hydro-electric power.

In response, we have worked closely with government and local water authorities to find solutions. At our Tubarão plant in Vitória, where investments into treatment systems have enabled us to reduce our intake of fresh water by 40% since 2014, we were nonetheless reliant on surface water from the Santa Maria river. In 2015 we secured permission to dig groundwater wells within our steel plant, enabling us to access a water source that is not used by the city of Vitória. And for the longer term, we are investigating the viability of desalination as a means to ensure the reliability of our water supply.

Investing in air quality

Air quality is a high priority for the communities who live and work close to our operations. Across Brazil, states are reviewing air quality standards, and we aim to comply with or exceed them.

Addressing stakeholder concerns about air quality in Vitória is one of our highest priorities. Alongside investment in improvements, we need to keep our channels of communication open to those around us – and we are continually speaking with local communities and the authorities to find the best way forward.

Benjamin Baptista
CEO Flat Carbon South America

Invested in environmental improvement since 2014

100

(US$ million)

In Vitória, where we share a complex with other industries close to a city of two million people, the Brazilian government is investigating 'black dust', emissions that are associated with industrial activity in the region.

A State Decree of 2013 regarding air quality aimed to establish intermediate targets to reach air quality standards recommended by the World Health Organization. We are working together with the local environment agency to improve our process controls in pursuit of these standards.

Moreover, we have invested heavily in environmental improvements – around US$100 million just since 2014 – including an automated system in the coal yard to reduce dust from coal piles, and the planting of some 2.8 million trees in the area to reduce wind erosion. In 2016, we approved a US$26 million project to install dust bag filters at Tubarão, which will reduce emissions from our sinter plant by 90%, and emissions from the segment as a whole by 18%.

Learn more about Outcome 5.

Helping build the skills that will boost recovery

In the context of economic recession, the value we bring to the Brazilian economy is crucial. More than that, we are building the skills for the future economy because these will also ensure that we retain and build a high-performing workforce – particularly in science, technology, engineering and maths (STEM).

We are preparing to open two new campuses for our ArcelorMittal University in Brazil in 2017, and we also want to encourage STEM subjects among the next generation. We run a number of projects, including the ArcelorMittal Environment Award, which has been dedicated to raising awareness of environmental issues among elementary school students and employees’ children for 25 years. The 2016 awards involved 73,000 students, and in November 2016 the first prize was awarded to an initiative entitled "sustainable solar energy accessible to populations in need," conceived by the Municipal School Ordeal Ferreira Campos, Sabará.

We also want to support the small manufacturing businesses that are vital to our business and to local economies. In 2016, we joined the local government in Vitória and financial partners to support such companies in the region.

Learn more about Outcome 9.

At-a-glance: key progress against our Action 2020 objectives

Cost

Portfolio optimised with the closure of Point Lisas operations in Trinidad and Tobago
Fixed cost reduction plan saves $32 million in 2016 through measures including new maintenance contracts and reduced operations at two long steel plants
Further fixed costs savings in Argentina  
Coke rates for flat steel production optimised to reduce raw material inputs
Transformation programme targets productivity improvement

Volume

Flat Carbon business achieved record production, driven by exports
New rolling mill in Acindar, Argentina, to increase rolling capacity by 0.4 million tonnes per year for bars for civil construction

Product mix and customer service

Tubarão plant equipped to produce Usibor® high-strength steel for automotive industry
Increased focus on key industry clients and streamlined sales service
Investment in desulphurisation technology to improve quality
Acindar to optimise special bar quality (SBQ) production to focus on automotive and mining industries
Dedicated development team created to expand high-added value portfolio
Sales of high-grade slab steels expanded
Production of galvanised products increased

Although the situation remains uncertain in Brazil, we see signs of returning confidence and the prospects for a mild recovery in 2017. It will start from a very low base, but we expect apparent steel consumption to grow by 3-4%, and improvement in demand from the automotive sector.

We believe the steps we’ve taken in 2016 will stand us in good stead for 2017. Not only have we made significant strides in improving our competitiveness, but we’ve built on the strong relationships that our stakeholders, including customers, value.

Together with our increasing capacity to produce the advanced steels that will help our customers create products that contribute to a sustainable future, these steps will help us play our part in returning our business and the wider economy to prosperity.