Açotubo ready to take full advantage of Brazil's economic recovery

Wednesday, April 4, 2018

Brazilian steel products distributor Açotubo has seen positive revenue growth from the second quarter of last year extending into 2018 as Latin America's largest economy is recovering from a historic recession.

The 44-year old company expects the recovery to lead to higher demand from several sectors this year and to strong double-digit revenue growth.

To get more details about Açotubo's past performance and its outlook for the coming years, BNamericas spoke with financial director Wilson Bassi.

BNamericas: Could you give us an overview of the group's performance in the Brazilian steel market today and its insertion in the local distribution sector?

Bassi: In addition to the distribution of steel products, the group produces drawn pipes and anchoring systems.

Our headquarters are located in Guarulhos, São Paulo state, and we have six branches strategically distributed in five states for the supply of regional metal-mechanical hubs.

As a principle, we favor domestic producers. Our main local suppliers are VallourecGerdauTenaris ConfabArcelorMittal and Aperam.

Imported products distributed by the company represents about 5% of total sales, mainly in products such as stainless steel bars and some connection lines, which are not produced domestically.

Furthermore, our capillarity goes throughout the national territory.

BNamericas: Can you tell us about the group's investments in recent years and what to expect for the medium and long-term in terms of investments?

Bassi: Like most companies in Brazil that produce or distribute commodities, financial results during 2015-17 were low and sometimes negative, and we suffered from the lack of public and private investments.

During this period we worked to make ourselves more productive, more agile and to make the most of our positive differences to increase the distance from our local and foreign competition.

But the prospects for this year are good. We will invest something around 50mn reais (US$14.9mn), split between infrastructure, processes, software, product launches, training, and the expansion of the new headquarters in São Paulo.

Thus, we believe that these pillars will allow the group to endure for at least the next 45 years.

BNamericas: The group expects growth in demand as a result of the country's economic recovery? What sectors does Açotubo expect to have the strongest demand for your products?

Bassi: There has been a positive sign of growth since 2Q17 which we believe was extending into the first quarter of 2018. And we strongly view 2019 as a year of positive growth in our economy and greater investments in infrastructure by the public and private sectors.

This year we have been seeing strong demand coming from sectors such as autos, sugar and alcohol, machinery and equipment, agricultural and domestic appliances. As a result, we project revenue growth of 18-20% in 2018 to 900mn reais, compared to 750mn reais last year.

BNamericas: The group is spread across five states. Are there regional differences in terms of demand? Is there room for serving additional markets locally?

Bassi: Yes, we are currently in the states of São Paulo, Minas Gerais, Rio de Janeiro, Paraná and Rio Grande do Sul, and in the past we have been in Espírito Santo and Bahia.

Santa Catarina, for example, could be the next state to receive some of the group's facilities. It is an issue that is being discussed at board meetings.

Regional demands are very different depending on the sectors of the economy and by product line, thus we have different strategies depending on the markets.

BNamericas: Is Açotubo targeting any foreign markets?

Bassi: Yes, we have already internationalized the commercialization of our product lines in Latin America and we are now evaluating the internationalization of our [corporate] structure in the regional market. And we always follow the evolution of the North American and European markets.

Regionally, we started distributing products through sales to Paraguay, Argentina, Colombia, Uruguay, Bolivia and Chile, and we are recognized for our logistics, volume fractionation and forms of customer financing. We currently have a diversified portfolio of domestic and international clients, which on average totals 4,500 per month.

BNamericas: Finally, do the protectionist measures from the Donald Trump administration impact Açotubo's operations in any way?

Bassi: The measures taken by the US do not impact the markets served by the group, since the largest export of steel products from Brazil to the US is the carbon flat steel line, and we do not work with this particular line.

However, in the long term we may face oversupply in the Brazilian market, with a negative impact on the prices of commodities used in the making of steel.

In addition, the surplus of China's production capacity that will not enter the US market could be displaced towards other countries and be harmful to Brazil.