SEC Company Response from NATIONAL STEEL (SID) — Feb 10, 2010
NATIONAL STEEL CO
Date: Feb. 10, 2010 · CIK: 0001049659 · Accession: 0001292814-10-000314
AI Filing Summary & Sentiment
Referenced dates: January 8, 2010, September 17, 2009
Letter
Division of Corporation Finance United States Securities and Exchange Commission Form 20.F for the Fiscal Year Ended December 31, 2008 Filed June 30, 2009 File No. 1-14732 Response to Staff Comment Letter dated January 8, 2010
Dear Mr. O’Brien:
Reference is made to the comment letters from the staff of the United States Securities and Exchange Commission (the “Staff”) received by Companhia Siderúrgica Nacional (the “Company” or “CSN”) on September 17, 2009, November 3, 2009 and January 8, 2010, concerning the Company’s annual report on Form 20-F filed with the SEC on June 30, 2009 (the “2008 Form 20-F”). On October 23, 2009 and November 17, 2009 we provided letters with our responses to the Staff’s comments. This letter provides the Company’s responses to the Staff’s additional comments mentioned in your January 8, 2010 letter. For your convenience, we have reproduced below in italics the Staff’s additional comments numbered 1 through 18 and have provided responses immediately below such comments. All page numbers referred to herein are to the 2008 Form 20-F.
SEC Comment No. 1.
5A. Operating Results, page 55
Markets and Product Mix, page 55
1. We note your response to comment 1 in our letter dated September 17, 2009. Specifically, we note your reference to footnote 1 to the Net Operating Revenues table on page 57 as representing the difference between the total net operating revenues presented in the table and net operating revenues for the steel reportable segment in Note 19. Based on the definition of net operating revenues from your consolidated statements of income, net operating revenues in Note 19 for fiscal year 2008 is $5.865 billion for the steel reportable segment. Net operating revenues for the steel reportable segment per the table on page 57, including the amount in footnote 1, is $7.187 billion. Given the significant difference, we continue to request that you revise your disclosures for net operating revenues on page 57 in an amendment to your fiscal year 2008 Form 20-F to reconcile for investors the differences between the table presented on page 57 and the amounts disclosed in Note 19 for your steel reportable segment’s net operating revenues for each period presented.
Companhia Siderúrgica Nacional
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Response to Comment No. 1.
We note the Staff’s comment and wish to clarify that:
The amount of US$ 1.437 billion described in footnote 1 to the Net Operating Revenues table on page 57 accounts for the difference between the total net operating revenues presented in the table ($5.750 billion) and the consolidated net operating revenues from our consolidated statements of income in Note 19 ($7.187 billion), which also includes our mining, logistics and cement reportable segments. This is why this number when added to the US$ 5.750 billion revenues presented in the table was significantly different from the US$ 5.865 billion revenues from steel reportable segment described in Note 19. We will delete footnote 1 from the revised table on page 57.
Net operating revenues presented in the table on page 57 ($5.750 billion) are not equivalent to net operating revenues for the steel reportable segment in Note 19 ($5.865 billion) as the table on page 57 excludes other revenues from by-products generated by the steelmaking process, which amounted to US$ 129 million, US$ 398 million and US$ 115 million, in 2006, 2007 and 2008, respectively. We will include these figures in a revised table in an amendment to our 2008 Form 20-F.
Therefore, in response to the Staff’s comment the Company will amend the disclosure of 2008 Form 20-F to include the information requested, as follows:
“Sales Volume and Net Operating Revenues by Products and Markets
Steel
The following table sets forth our steel product net revenues by product and market.
Net Operating Revenues(1)
U.S. dollars
% of Net Operating Revenues
In Market
Total
(In millions of US$)
(In percentages)
Domestic Sales
Slabs
-
Hot-rolled
1,170
1,740
Cold-rolled
Galvanized
1,097
1,583
Tin Mill
Sub-total
2,383
3,553
4,989
Export Sales
Slabs
-
Hot-rolled
-
Cold-rolled
-
Galvanized
Tin Mill
Sub-total
1,206
1,407
Total
3,589
4,960
5,750
Companhia Siderúrgica Nacional
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Total Sales
Slabs
Hot-rolled
1,232
1,763
Cold-rolled
Galvanized
1,372
1,813
2,074
Tin Mill
1,105
1,065
Sub-totalTotal
3,589
4,960
5,750
By-products
-
-
-
Total
3,718
5,358
5,865
(1) Net operating revenues do not include revenues from non-steel products, principally iron ore,by-products, services and electric energy, which amounted to US$257 million, US$557 million and US$1,437 million in 2006, 2007 and 2008, respectively. Net operating revenues attributed to each product class were obtained by multiplying the average price per ton of each class of product by the sales volume of such class.”
SEC Comment No. 2.
Results of Operations, page 63
2. We note your response to comment 2 in our letter dated September 17, 2009. As previously requested, please revise your results of operations discussion and analysis to include a discussion and analysis for your mining reportable segment, as this reportable segment represented 27% of fiscal year 2008 consolidated operating income. Based on the significance of the reportable segment to your fiscal year 2008 consolidated operating income, there is a concern that investors have not been provided sufficient information to fully assess your historical operating results with a view toward future operating result expectations to the extent known. With regard to the disclosure you provided in your response letter, please provide investors with a more detailed analysis. For example, please provide some context of the 18.5 million tons of iron ore sales volume recorded in 2008 with the tons of iron ore sold in 2007 along with an explanation as to why there was an increase in capacity in the Itaguaí Port. Please also quantify the impact of the increase in average iron ore prices for fiscal year 2008 as compared to fiscal year 2007. Further, the disclosures regarding the amount of revenues, gross profit and operating income recognized in fiscal year 2008 for NAMISA provide investors with a material insight as to the change in the mining reportable segment’s revenues, gross profit and operating income in future periods, as required by Item 303(A)(3)(ii) of Regulation S-K.
Response to Comment No. 2.
In response to the Staff’s comment the Company will amend the 2008 Form 20-F to revise our results of operations discussion and analysis for our mining reportable segment, as follows:
“Mining Segment
We began exporting iron ore only in 2007, when we first presented our results by segment. As a result we only had a full year of iron ore export operation in 2008 and any comparative analysis for our mining segment between 2008 and 2007 is not representative in light of the low volumes sold in 2007.
Companhia Siderúrgica Nacional
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Operating revenues for our mining segment, excluding intersegment sales¹, amounted to US$ 1,211 million in 2008, as compared to US$ 267 million in 2007, an increase of US$ 944 million (or 353.6%) . If we include intersegment sales, operating revenues for our mining segment would have amounted to US$ 1,382 million in 2008, as compared to US$ 267 million in 2007, an increase of US$ 1,115 million (or 417.6%) .
The increase in operating revenues for our mining segment was mainly due to:
(i) Increase in total iron-ore sales volume from 10.5 million tons in 2007 to 18.5 million tons in 2008, a 76% increase, mainly due to the increase in capacity in our Solid Bulks seaport terminal in the Itaguaí Port. The completion of the second phase of this terminal project in the Itaguaí Port resulted in an increase of the handling capacity from 7 million tons of iron ore per year in 2007 to 30 million tons in 2008.
In terms of operating revenues, this increase in capacity enabled us to increase our export sales and, consequently, the total iron ore sales volumes, which resulted in an increase of US$ 523 million to our mining segment operating revenues from 2007 to 2008;
(ii) Increase in iron ore international prices in light of substantial demand from China. In 2008 iron ore export prices averaged US$ 67/ton, 56% more than the US$ 43/ton average in 2007.The impact of the increase in prices on our operating revenues resulted in an increase of US$ 421 million to our mining segment from 2007 to 2008.
Cost and Operating Expenses for the mining segment increased from US$ 347 million in 2007 to US$ 562 million in 2008 due to the higher volume sold in 2008.
In 2008 our gross profit for the mining segment amounted to US$ 928 million, with gross margin of 70%, and operating income amounted to US$ 767 million, with operating margin of 58%. As compared to 2007 our margins increased in light of increase in iron ore prices, greater volume sold and dilution of iron ore fixed production costs.
In 2008 operating revenues, gross profit, and operating income for Namisa were US$ 434 million, US$ 263 million and US$ 168 million, respectively. Therefore, excluding Namisa our operating revenues, gross profit, and operating income arising from our mining activities in 2008 would have been US$ 948 million, US$ 665 million and US$ 599 million, respectively, which would still represent significant increases if compared to 2007 (which included Namisa).
Namisa’s results for 2009 will be presented as equity in results of affiliates in our statement of income under our mining segment.
(1) In 2008, intersegment sales from mining to steel segment amounted to US$ 171 million. Including intersegment sales, mining operating revenues totaled US$ 1,382 million as presented in our consolidated statements of income in Note 19.”
SEC Comment No. 3.
3. As previously requested, please include the additional disclosures you intend to include in future filings in response to comment 3 in our letter dated September 17, 2009, in an amendment to your fiscal year 2008 Form 20-F. There is a concern that your current disclosures do not provide investors with sufficient information to understand your historical operating results with a view toward future operations as seen through the eyes of management. Refer to Item 303(A)(3) of Regulation S-K and Section 501.12 of the Financial Reporting Codification for guidance.
Companhia Siderúrgica Nacional
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Response to Comment No. 3.
In response to the Staff’s comment the Company will amend the 2008 Form 20-F as follows:
“Gross Profit
Gross profit increased by 47.9%, from US$ 2,441 million in 2007 to US$ 3,611 million in 2008, mainly due to the increase of 30.3% in net operating revenues from US$ 5,517 million in 2007 to US$ 7,187 million in 2008, which was partially offset by the increase of 16.2% in the cost of products sold.”
The 30.3% increase in our consolidated net operating revenues from 2007 to 2008 can be attributed to the following:
In connection with our steel segment: (i) larger volume of sales in the domestic market (increase from 3,614 million tons in 2007 to 4,158 million tons in 2008) where we historically have recorded higher profit margins; (ii) increase of the domestic sales in terms of total sales volume, from 67% in 2007 to 85% in 2008; and (iii) successive steel price hikes in the domestic market during 2008.
In connection with the mining segment: (i) an all-time record of 18.5 million tons of iron ore sales volume in 2008 due to the increase of our iron ore export capacity in the Itaguaí port and general improvements in iron ore extraction processes and logistics; and (ii) the increase in average iron ore prices in the international market realized in 2008.
On the other hand, our cost of products sold increased at a lower rate (16.2%) due to the following reasons:
In connection with the steel segment (i) cost of products sold is mainly driven by raw material prices (which represent approximately 50% of our total steel production cost); (ii) we are self sufficient in the production of iron ore, which is one of the main raw material for steelmaking - thus, our exposure to the increases in raw material prices realized in 2008 was mainly limited to coke and coal (which represented 29% of our production cost in 2008); and (iii) there was no significant oscillation in the other steel production costs for the year.
In connection with the mining segment: (i) the production cost is basically driven by extraction, beneficiation and logistic costs, which remained stable in 2008; and (ii) we realized a dilution in our per ton iron ore fixed production costs, due to the aforementioned increase in sales volumes.”
SEC Comment No. 4.
4. We note your response to comment 4 in our letter dated September 17, 2009. As previously requested, please revise your explanation for the income recognized in fiscal year 2008 related to the change in fair value of your foreign exchange derivative instruments as compared to the expense recognized in fiscal year 2007 in an amendment to your fiscal year 2008 Form 20-F. There continues to be a concern that investors may not understand the income recognized for the change in fair value of your foreign exchange derivative instruments. Your disclosure currently appears to attribute the income recognized in fiscal year 2008 to the slight appreciation of the average exchange rate in fiscal year 2008 as compared to the average exchange rate in fiscal year 2007 rather than the depreciation of the exchange rate as of December 31, 2008, as compared to the exchange rate as of December 31, 2007.
Companhia Siderúrgica Nacional
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Response to Comment No. 4.
In response to the Staff’s comment the Company consents that investors may not understand that the changes in fair value are impacted by the period-end exchange rates and not by the average exchange rate.
We will amend the disclosure in Results of Operations, on page 68 of our 2008 Form 20-F t
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February 9, 2010
VIA FACSIMILE AND EDGAR TRANSMISSION
Mr. Terence O’Brien
Accounting Branch Chief
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-4631
Fax: (703) 813-6968
RE:
National Steel Company
Form 20.F for the Fiscal Year Ended December 31, 2008
Filed June 30, 2009
File No. 1-14732
Response to Staff Comment Letter dated January 8, 2010
Dear Mr. O’Brien:
Reference is made to the comment letters from the staff of the United States Securities and Exchange Commission (the “Staff”) received by Companhia Siderúrgica Nacional (the “Company” or
“CSN”) on September 17, 2009, November 3, 2009 and January 8, 2010, concerning the Company’s annual report on Form 20-F filed with the SEC on June 30, 2009 (the “2008 Form 20-F”). On October 23, 2009 and
November 17, 2009 we provided letters with our responses to the Staff’s comments. This letter provides the Company’s responses to the Staff’s additional comments mentioned in your January 8, 2010 letter. For your convenience, we have
reproduced below in italics the Staff’s additional comments numbered 1 through 18 and have provided responses immediately below such comments. All page numbers referred to herein are to the 2008 Form 20-F.
SEC Comment No. 1.
5A. Operating Results, page 55
Markets and Product Mix, page 55
1. We note your response to comment 1 in our letter dated September 17, 2009. Specifically, we note your reference to footnote 1 to the Net Operating Revenues table on page 57 as representing the difference between the total net
operating revenues presented in the table and net operating revenues for the steel reportable segment in Note 19. Based on the definition of net operating revenues from your consolidated statements of income, net operating revenues in Note 19 for
fiscal year 2008 is $5.865 billion for the steel reportable segment. Net operating revenues for the steel reportable segment per the table on page 57, including the amount in footnote 1, is $7.187 billion. Given the significant difference,
we continue to request that you revise your disclosures for net operating revenues on page 57 in an amendment to your fiscal year 2008 Form 20-F to reconcile for investors the differences between the table presented on page 57 and the amounts
disclosed in Note 19 for your steel reportable segment’s net operating revenues for each period presented.
Companhia Siderúrgica Nacional
1
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Response to Comment No. 1.
We note the Staff’s comment and wish to clarify that:
The amount of US$ 1.437 billion described in footnote 1 to the Net Operating Revenues table on page 57 accounts for the difference between the total net operating revenues presented in the table ($5.750 billion) and the consolidated net
operating revenues from our consolidated statements of income in Note 19 ($7.187 billion), which also includes our mining, logistics and cement reportable segments. This is why this number when added to the US$ 5.750 billion revenues
presented in the table was significantly different from the US$ 5.865 billion revenues from steel reportable segment described in Note 19. We will delete footnote 1 from the revised table on page 57.
Net operating revenues presented in the table on page 57 ($5.750 billion) are not equivalent to net operating revenues for the steel reportable segment in Note 19 ($5.865 billion) as the table on page 57 excludes other revenues from
by-products generated by the steelmaking process, which amounted to US$ 129 million, US$ 398 million and US$ 115 million, in 2006, 2007 and 2008, respectively. We will include these figures in a revised table in an amendment to our 2008
Form 20-F.
Therefore, in response to the Staff’s comment the Company will amend the disclosure of 2008 Form 20-F to include the information requested, as follows:
“Sales Volume and Net Operating Revenues by Products and Markets
Steel
The following table sets forth our steel product net revenues by product and market.
Net Operating Revenues(1)
U.S. dollars
% of Net Operating Revenues
In Market
Total
2006
2007
2008
2006
2007
2008
2006
2007
2008
(In millions of US$)
(In percentages)
Domestic Sales
Slabs
14
33
47
1
1
1
-
1
1
Hot-rolled
618
1,170
1,740
26
33
35
17
24
30
Cold-rolled
322
499
757
14
14
15
9
10
13
Galvanized
713
1,097
1,583
30
31
32
20
22
28
Tin Mill
716
754
862
29
21
17
20
15
15
Sub-total
2,383
3,553
4,989
100
100
100
66
72
87
Export Sales
Slabs
43
154
20
4
11
2
1
3
-
Hot-rolled
168
62
23
14
4
3
5
1
-
Cold-rolled
93
124
24
8
9
3
3
3
-
Galvanized
659
716
491
55
51
65
18
14
9
Tin Mill
243
351
203
19
25
27
7
7
4
Sub-total
1,206
1,407
761
100
100
100
34
28
13
Total
3,589
4,960
5,750
100
100
100
Companhia Siderúrgica Nacional
2
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Total Sales
Slabs
57
187
67
1
4
1
2
3
1
Hot-rolled
786
1,232
1,763
22
25
30
21
23
30
Cold-rolled
415
623
781
12
13
14
11
12
13
Galvanized
1,372
1,813
2,074
38
36
36
37
34
36
Tin Mill
959
1,105
1,065
27
22
19
26
21
18
Sub-totalTotal
3,589
4,960
5,750
100
100
100
97
93
98
By-products
129
398
115
-
-
-
3
7
2
Total
3,718
5,358
5,865
100
100
100
100
100
100
(1) Net operating revenues do not include revenues from non-steel products, principally iron ore,by-products, services and electric energy, which amounted to US$257 million, US$557 million and US$1,437 million
in 2006, 2007 and 2008, respectively. Net operating revenues attributed to each product class were obtained by multiplying the average price per ton of each class of product by the sales volume of such
class.”
SEC Comment No. 2.
Results of Operations, page 63
2. We note your response to comment 2 in our letter dated September 17, 2009. As previously requested, please revise your results of operations discussion and analysis to include a discussion and analysis for your mining reportable
segment, as this reportable segment represented 27% of fiscal year 2008 consolidated operating income. Based on the significance of the reportable segment to your fiscal year 2008 consolidated operating income, there is a concern that investors have
not been provided sufficient information to fully assess your historical operating results with a view toward future operating result expectations to the extent known. With regard to the disclosure you provided in your response letter, please
provide investors with a more detailed analysis. For example, please provide some context of the 18.5 million tons of iron ore sales volume recorded in 2008 with the tons of iron ore sold in 2007 along with an explanation as to why there was an
increase in capacity in the Itaguaí Port. Please also quantify the impact of the increase in average iron ore prices for fiscal year 2008 as compared to fiscal year 2007. Further, the disclosures regarding the amount of revenues, gross profit and operating income recognized in fiscal year 2008 for NAMISA provide investors with a material insight as to the change in the mining
reportable segment’s revenues, gross profit and operating income in future periods, as required by Item 303(A)(3)(ii) of Regulation S-K.
Response to Comment No. 2.
In response to the Staff’s comment the Company will amend the 2008 Form 20-F to revise our results of operations discussion and analysis for our mining reportable segment, as follows:
“Mining Segment
We began exporting iron ore only in 2007, when we first presented our results by segment. As a result we only had a full year of iron ore export operation in 2008 and any comparative analysis for our mining segment between 2008 and 2007 is not
representative in light of the low volumes sold in 2007.
Companhia Siderúrgica Nacional
3
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Operating revenues for our mining segment, excluding intersegment sales¹, amounted to US$ 1,211 million in 2008, as compared to US$ 267 million in 2007, an increase of US$ 944 million (or 353.6%) . If we include intersegment sales,
operating revenues for our mining segment would have amounted to US$ 1,382 million in 2008, as compared to US$ 267 million in 2007, an increase of US$ 1,115 million (or 417.6%) .
The increase in operating revenues for our mining segment was mainly due to:
(i) Increase in total iron-ore sales volume from 10.5 million tons in 2007 to 18.5 million tons in 2008, a 76% increase, mainly due to the increase in capacity in our Solid Bulks seaport terminal in the Itaguaí Port. The completion of the
second phase of this terminal project in the Itaguaí Port resulted in an increase of the handling capacity from 7 million tons of iron ore per year in 2007 to 30 million tons in 2008.
In terms of operating revenues, this increase in capacity enabled us to increase our export sales and, consequently, the total iron ore sales volumes, which resulted in an increase of US$ 523 million to our mining
segment operating revenues from 2007 to 2008;
(ii) Increase in iron ore international prices in light of substantial demand from China. In 2008 iron ore export prices averaged US$ 67/ton, 56% more than the US$ 43/ton average in 2007.The impact of the increase in prices on our operating revenues resulted in an increase of US$ 421 million to our mining segment from 2007 to 2008.
Cost and Operating Expenses for the mining segment increased from US$ 347 million in 2007 to US$ 562 million in 2008 due to the higher volume sold in 2008.
In 2008 our gross profit for the mining segment amounted to US$ 928 million, with gross margin of 70%, and operating income amounted to US$ 767 million, with operating margin of 58%. As compared to 2007 our margins increased in light of
increase in iron ore prices, greater volume sold and dilution of iron ore fixed production costs.
In 2008 operating revenues, gross profit, and operating income for Namisa were US$ 434 million, US$ 263 million and US$ 168 million, respectively. Therefore, excluding Namisa our operating revenues, gross profit, and operating income
arising from our mining activities in 2008 would have been US$ 948 million, US$ 665 million and US$ 599 million, respectively, which would still represent significant increases if compared to 2007 (which included Namisa).
Namisa’s results for 2009 will be presented as equity in results of affiliates in our statement of income under our mining segment.
(1) In 2008, intersegment sales from mining to steel segment amounted to US$ 171 million. Including intersegment sales, mining operating revenues totaled US$ 1,382 million as presented in our consolidated statements of income in Note
19.”
SEC Comment No. 3.
3. As previously requested, please include the additional disclosures you intend to include in future filings in response to comment 3 in our letter dated September 17, 2009, in an amendment to your fiscal year 2008 Form 20-F. There
is a concern that your current disclosures do not provide investors with sufficient information to understand your historical operating results with a view toward future operations as seen through the eyes of management. Refer to Item 303(A)(3) of Regulation S-K and Section 501.12 of the Financial Reporting Codification for guidance.
Companhia Siderúrgica Nacional
4
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Response to Comment No. 3.
In response to the Staff’s comment the Company will amend the 2008 Form 20-F as follows:
“Gross Profit
Gross profit increased by 47.9%, from US$ 2,441 million in 2007 to US$ 3,611 million in 2008, mainly due to the increase of 30.3% in net operating revenues from US$ 5,517 million in 2007 to US$ 7,187 million in 2008, which was
partially offset by the increase of 16.2% in the cost of products sold.”
The 30.3% increase in our consolidated net operating revenues from 2007 to 2008 can be attributed to the following:
In connection with our steel segment: (i) larger volume of sales in the domestic market (increase from 3,614 million tons in 2007 to 4,158 million tons in 2008) where we historically have recorded higher profit margins; (ii)
increase of the domestic sales in terms of total sales volume, from 67% in 2007 to 85% in 2008; and (iii) successive steel price hikes in the domestic market during 2008.
In connection with the mining segment: (i) an all-time record of 18.5 million tons of iron ore sales volume in 2008 due to the increase of our iron ore export capacity in the Itaguaí port and general improvements in iron ore
extraction processes and logistics; and (ii) the increase in average iron ore prices in the international market realized in 2008.
On the other hand, our cost of products sold increased at a lower rate (16.2%) due to the following reasons:
In connection with the steel segment (i) cost of products sold is mainly driven by raw material prices (which represent approximately 50% of our total steel production cost); (ii) we are self sufficient in the production of iron
ore, which is one of the main raw material for steelmaking - thus, our exposure to the increases in raw material prices realized in 2008 was mainly limited to coke and coal (which represented 29% of our production cost in 2008); and
(iii) there was no significant oscillation in the other steel production costs for the year.
In connection with the mining segment: (i) the production cost is basically driven by extraction, beneficiation and logistic costs, which remained stable in 2008; and (ii) we realized a dilution in our per ton iron ore fixed
production costs, due to the aforementioned increase in sales volumes.”
SEC Comment No. 4.
4. We note your response to comment 4 in our letter dated September 17, 2009. As previously requested, please revise your explanation for the income recognized in fiscal year 2008 related to the change in fair value of your foreign
exchange derivative instruments as compared to the expense recognized in fiscal year 2007 in an amendment to your fiscal year 2008 Form 20-F. There continues to be a concern that investors may not understand the income recognized for the change in
fair value of your foreign exchange derivative instruments. Your disclosure currently appears to attribute the income recognized in fiscal year 2008 to the slight appreciation of the average exchange rate in fiscal year 2008 as compared to the average exchange rate in fiscal year 2007 rather than the depreciation of the exchange rate as of December 31, 2008, as
compared to the exchange rate as of December 31, 2007.
Companhia Siderúrgica Nacional
5
Escritório Central
Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio
Financial Faria Lima Center
Cep: 04538-132 - São Paulo - SP
Response to Comment No. 4.
In response to the Staff’s comment the Company consents that investors may not understand that the changes in fair value are impacted by the period-end exchange rates and not by the average exchange rate.
We will amend the disclosure in Results of Operations, on page 68 of our 2008 Form 20-F t