Corus mulls fresh Brazilian move

Corus, the Anglo-Dutch steel maker, is considering a fresh approach to CSN, the Brazilian steel maker it tried and failed to merge with four years ago, in an attempt to secure a low-cost supply base and help maintain its independence.

Any tie-up with the Brazilian company would probably involve a partnership agreement as opposed to the full-blooded £2.7bn takeover of CSN which Corus tried to pull off in 2002.

Philippe Varin, the chief executive of Corus, said Brazil was one of three regions of the world where it was interested in linking up with a low-cost steel slab producer to improve the group's efficiency, the other two being India and the former Soviet Union countries.

"Exploratory discussions are going on. We are ready to enter into appropriate local partnerships when needed," said M. Varin.

He was speaking as Corus announced the £570m sale of the bulk of its Dutch aluminium business to Aleris International of the US and reported a 2 per cent rise in pre-tax profits to £580m, despite rising cost pressures and lower selling prices. Corus shares surged 12 per cent to 85.25p, valuing the company at £3.8bn.

M. Varin warned that higher energy prices would add a further £120m to its costs this year. Even though Corus is on course to achieve the £680m cost improvement target M Varin set when he became chief executive three years ago, the competitive gap between the company and its rivals is widening because of the higher costs Corus is saddled with. The gap began at 6 per cent when M. Varin took over in 2003 and fell to 3.5 per cent in 2004 but rose to 4.5 per cent last year.

Under the deal with Aleris, the US company will acquire Corus's aluminium rolling mills but not its smelters. These will remain with Corus, which will supply Aleris with aluminium slab under a long-term contract.

The Aleris deal is being opposed by Corus's Dutch works council, which had wanted the aluminium business to be kept intact. Crucially, however, it has the backing of the supervisory board of Corus's Dutch arm, which vetoed the previous attempt to sell the aluminium business to Pechiney of France in 2003. The collapse of that deal, coming just five months after Corus was also forced to abandon the takeover of CSN, precipitated the sacking of the then Corus chief executive Tony Pedder.

The sale of Corus's aluminium assets is the final leg of the survival strategy which M. Varin mapped out when he arrived three years ago with the Corus share price at 3.75p and the group teetering on the brink of bankruptcy. Since then, he has successfully refinanced the company, reunited its warring British and Dutch halves, returned the UK steel-making operations to profitability and achieved most of the cost-savings identified at the time.

But he made it clear yesterday that a deal with a low-cost producer was important if Corus was to retain its independence amid the consolidation taking place across the industry. The competitive threat to the company will only increase if Mittal Steel succeeds in its €19bn bid for Arcelor.

After deducting pension liabilities, net proceeds from the aluminium disposal will be £502m. These will be used to pay down debt and invest in the carbon steel business.

Despite the increase in energy costs, Corus said it expected steel prices to pick up in the second quarter of this year against the background of a 5 per cent increase in global steel demand this year.