Brazil Steel Case Study

Brazil Steel Case Study

Our client is a $30 B multinational conglomerate, who is considering building a new steel plant in Brazil.

The company has an existing steel plant, which was built 10 years ago so is getting dated and so less efficient, but that they would plan to continue to operate. Since building the plant, two other competitors have entered the market.

These steel plants make a specialty steel that is used in Brazil and around the world.

The new plant would produce 1,000,000 tons of steel per year, and cost $400M to build. The existing plant produces 600,000 tons per year. The plant could sell to the domestic or export market. There is essentially endless demand for this steel product globally.

Candidate plan

Candidate may come up with many relevant factors, interviewer should guide towards market prices, competitor capacities, competitor economics.

Relevant Data:

Local Players Plant capacity (tons) Cost/ton Local sales Export sales

Client 600,000 $450 600,000 -

Competitor B 4,500,000 $420 2,800,000 1,700,000

Competitor C 3,200,000 $420 2,000,000 1,200,000

Cost to produce at the new plant will be $420/ton

Domestic price is $600/ton

Export price is $450/ton

Notes:

Interviewee should note that domestic price is much higher than export price, and be able to provide some reasons for why that might be

Interviewee should recognize that local market has reached capacity

• Thus, new plant should be profitable on export market

Step