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   sid20160825_corresp.htm - Generated by SEC Publisher for SEC Filing

August 25, 2016

Via EDGAR transmission and hand delivery

Mr. Terence O’Brien
Branch Chief
Office of Manufacturing and Construction
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-4631

Re:      National Steel Company
Form 20-F for the fiscal year ended December 31, 2015
Filed May 16, 2016
Response Letter Dated May 6, 2016

File No. 1-14732

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 June, 22, 2016, concerning the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2015 and filed on May, 16, 2016 (the “2015 Form 20-F”) and on December 15, 2015, February 8, 2016 and April 15, 2016 concerning the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2014 and filed on April 30, 2015 and the Company’s report on Form 6-K furnished to the SEC on March 29, 2016. On January 14, 2016, March 8, 2016 and May 6, 2016 we provided letters with our responses to the Staff’s comments. This letter provides the Company’s responses to the Staff’s comments in your June 22, 2016 letter. For your convenience, we have reproduced below in italics the Staff’s comments and have provided responses immediately below such comments. All page numbers referred to herein are to the 2015 Form 20-F.

Because of the sensitive nature of information contained herein, we have filed a separate letter (the “Request Letter”) with the Office of FOIA Services (the “FOIA Office”) in connection with a request for confidential treatment of certain portions of this letter under the Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”), 17 C.F.R. § 200.83 (“Rule 83”), and the Securities and Exchange Commission (the “Commission”) rules and regulations promulgated under FOIA. For the Staff’s reference, we have enclosed a copy of the Request Letter with this copy of the correspondence marked to show the portions redacted from the version filed via EDGAR and for which the Company is requesting confidential treatment. In accordance with Rule 83, the Company requests confidential treatment of the portions marked with “[***]” (the “Confidential Information”) of this letter and the accompanying Request Letter (collectively, the “Confidential Material”). Please promptly inform the undersigned of any request for disclosure of the Confidential Material made pursuant to FOIA or otherwise so that the undersigned may substantiate the foregoing request for confidential treatment in accordance with Rule 83. In accordance with Rule 83, this letter has also been clearly marked with the legend “CONFIDENTIAL TREATMENT REQUESTED BY NATIONAL STEEL COMPANY PURSUANT TO RULE 83”.

   Companhia Siderúrgica Nacional

   Escritório Central

   Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio Financial Faria Lima Center

   Cep: 04538-132 - São Paulo - SP

   1

SEC Comment No. 1.

Operating and Financial Review and Prospects, page 74

Critical Accounting Estimates, page 82

Deferred Tax Assets, page 84

1)      We note the disclosures you have provided in Note 15.b. regarding the realizability of your deferred tax assets. Please provide a more detailed description of the positive and negative evidence you considered in making your determination of realizability of these assets and how that evidence was weighted.

For example, describe the nature of the underlying deferred tax assets that were reduced in accordance with IAS 12.56 and explain how you determined that those remaining balances will be utilized. If you are relying on the reversal of your deferred tax liabilities, please disclose as such and confirm that the deferred tax liabilities will reverse in the same period, are for the same jurisdiction, and are of the same character as the temporary differences giving rise to the deferred tax assets. If you are relying on the recognition of future pre-tax income, please disclose the amount of pre-tax income that you need to generate to realize the deferred tax assets. If you are relying on tax planning strategies, please disclose the nature of your tax planning strategies, how each strategy supports the realization of deferred tax assets, and any uncertainties, risks, or assumptions related to these tax-planning strategies. Refer to Section 501.14 of the Financial Reporting Codification for guidance.

Response to Comment No. 1.

The test of deferred tax assets realization is performed at the legal entity level and is not done on a consolidated basis. Our deferred tax assets subject to tests are substantially at the parent company level (98% of the consolidated carrying amounts) and other consolidated entities do not have material tax assets. The test was performed in the second semester of 2015, based on account balances as of June 30 2015. There were no substantial changes in our operations on December 31, 2015 that could materially modify our projections or our recorded amount of DTA.The parent company consists of the following businesses:

   Companhia Siderúrgica Nacional

   Escritório Central

   Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio Financial Faria Lima Center

   Cep: 04538-132 - São Paulo - SP

   2

·         Flat steel in Brazil;

·         Long steel in Brazil;

·         Mining (transferred to Congonhas Minérios on November 30, 2015 as a result of the business combination with Namisa);

·         Cement; and

·         Interest in Usiminas held at fair value;

We have deferred tax assets on tax losses and temporary differences, as disclosed in our financial statements in note 15, related mainly to the following:

   Nature

   Brief description

   Tax losses

   In 2011 we began incurring tax losses at the parent company level mostly because of high finance expenses, as substantially all our loans and financings are on this level.

   Exchange difference expenses

   Since 2012 we have opted to deduct this expense item on a cash basis. As we have operated without taxable profit (at the parent company level), it would not make sense to use this deductibility year by year (accrual basis). As a result of the cash basis tax treatment, taxes are only due and expenses are only deductible upon maturity of the debt.

   Losses on Usiminas shares

   The losses on Usiminas shares are recognized on an accrual basis, but the taxable event will occur only at the time of divestment.

   Other provisions

   Various accounting provisions are recognized on an accrual basis, but their taxation occurs only at the time of settlement, such as provisions for contingencies, impairment losses, environmental liabilities, etc.

We prepared projections for the next 10 years for our parent company based on our financial model which is aligned to the long term business plan of CSN. For the test we selected a base scenario, which uses assumptions based on market projections and internal studies.

The main assumptions used in our model are presented in the following table:

   Companhia Siderúrgica Nacional

   Escritório Central

   Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio Financial Faria Lima Center

   Cep: 04538-132 - São Paulo - SP

   3

   Foreign exchange (R$ per US$)

   Minimum 3.95; Maximum 4.68.

   Inflation (% p.a.)

   Minimum 4.7; Maximum 6.1.

   SELIC Interest rate (% p.a.)

   Minimum 10.3; Maximum 13.7.

   Flat steel sales volume (Mtpa)

   [***]

   Flat steel price (US$/t)

   [***]

   Iron ore sales volume (Mtpa)

   [***]

   Iron ore price 62% (US$/dmt)

   [***]

The model for projection of taxable profit considers 2 main indicators:

•      Pre-Tax Profit, reflecting our projected EBITDA plus depreciation, other income and expenses and finance income (expenses); and

•      Taxable Profit, which is our pre-tax profit plus (minus) expenses and income items that are taxable at a time different from the time obtained on an accrual basis (temporary differences).

Taxable profit is obtained considering adjustments to pre-tax profits for the following main items:

Ø  Foreign Exchange differences: are expected to be offset against future profits based on the original maturities of debts owed to third parties and rescheduling of maturities of  intercompany debts (to match the periods of greater profitability);

Ø  Losses on Usiminas: the model assumed using the tax assets at the time of sale of the shares (and realization of losses), within the divestment timeframe agreed to with Brazilian antitrust authorities (CADE).

Ø  Other provisions: in view of the unpredictability of the occurrence of losses for which we have recorded provisions, we assumed an even 10% utilization per year; and

Ø  Tax loss: utilization is limited under Brazilian law to 30% of the tax payable in a given year. Under Brazilian law income tax losses do not expire and may be used to offset future taxable profits.

Our model further considers a combination of scenarios of liquidity events in order to obtain resources for CSN that would reduce leverage and, consequently, lower financial expenses. The sale of assets is one of the alternatives in the company's profitability for the following years, as it would accelerate the reduction of financial expenses below the operating profit at the parent company level. The company has a divestment plan in progress in order to achieve the targeted sale of assets, conditioned upon obtaining an acceptable asset pricing offer at our discretion. The divestment plan was approved by our Board of Directors and it is expected to occur between the years [***]      .

   Companhia Siderúrgica Nacional

   Escritório Central

   Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio Financial Faria Lima Center

   Cep: 04538-132 - São Paulo - SP

   4

On the other hand, as a negative factor, CSN has experienced income tax losses in most of the last five years resulting from the deterioration of the Brazilian political and macroeconomic environment, as well as due to the growth of financial leverage, which has unbalanced the relationship between operating and financial results at the parent company level.

In summary, the main positive and negative evidences we considered in making our projections were:

I)                   Positive: Operating profit, sale of assets, non-expiration on tax losses benefit and extinguishment of the financial expenses arising from the pre-existing relationship between Namisa and the Parent Company and dividends to be received from Congonhas.

II)                Negative: Historical tax loss, increase in costs of iron ore, as from the business combination Congonhas started selling it at market price, utilization of tax loss is limited under Brazilian law to 30% of the tax payable in a given year.

The results projected in 2015 for the next years are included in the table below:

[***]

Considering the results above, we projected the utilization of the deferred tax assets according to the schedule of reversal of temporary differences by comparing them with the profits available in future periods.

The taxable profit available for the next 10 years at the parent company level, according to our projection would be [***] in profits at the parent company level to fully utilize our tax credits balance recorded at December 31, 2015. As a result and as described in note 15(b), “Impairment test - Deferred taxes,” we have stopped recording deferred tax assets in the third quarter of 2015 because in certain stress scenarios the recovery of deferred tax assets could not be fully realized, as discussed in more detail in our response to the Staff’s comment No. 3 below.

   Companhia Siderúrgica Nacional

   Escritório Central

   Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio Financial Faria Lima Center

   Cep: 04538-132 - São Paulo - SP

   5

SEC Comments No. 2 and 3.

Results of Operations, page 86

Income Taxes, page 92

2)      You indicate that your effective tax rate was positively impacted by an R$829,265 benefit related to results of subsidiaries taxed at different rates or not taxed. We note that for 2014 this benefit was only R$1,772. Please expand your disclosures to discuss the underlying factors that contributed to this change so that readers can understand this variance and assess any continuing impact of subsidiaries taxed at different rates or not taxed. To the extent material factors in your foreign operations include changes in your jurisdictional mix of income that may be impacting your effective tax rate, explain the changes and factors.

3)      You indicate your effective tax rate was negatively impacted by an R$177 million adjustment related to tax loss and negative basis for which the tax credit was not recorded and a negative impact of R$1,143 million related to tax credits not recorded in the year. Please expand your disclosures to provide the underlying facts and circumstances that led to these adjustments so that readers can fully understand the nature of these items.

Response to Comment No. 2.

The profits of certain of our foreign subsidiaries are taxed in the respective jurisdictions based on the local tax rates and currency. The accounting effects of the translation of these subsidiaries accounts (investments) from local currencies into the parent company’s currency (Brazilian Reais) are recorded in our consolidated statement of income. Even though translation effects are not subject to taxation it generates differences in the calculation of our effective tax rate.

During 2015, there were no changes in the procedures adopted by us or in the relevant laws in such jurisdictions. The difference between 2015 and 2014 is due to the significant devaluation of the Brazilian reais versus the foreign currencies as shown in the table below (dollar and euro) in such periods (such devaluation was not as relevant in 2014 comparing to 2013):

   Currencies

   2015

   2014

   2013

   Brazilian Reais x US Dollar

   3.9048

   2.6562

   2.3426

   Brazilian Reais x Euro

   4.2504

   3.2270

   3.2265

   Euro x US Dollar

   1.0885

   1.2149

   1.3773

   Companhia Siderúrgica Nacional

   Escritório Central

   Av. Brigadeiro Faria Lima, 3400 – 20º andar - Edificio Financial Faria Lima Center

   Cep: 04538-132 - São Paulo - SP

   6

Some of these foreign subsidiaries are presented in note 2.b.

We intend to expand our disclosures in future filings to provide more detailed information.

Response to Comment No. 3.

As described in our response to the Staff’s comment No. 1 and in note 15(b), “Impairment test - Deferred taxes,” we have stopped recording deferred tax assets on tax losses and temporary differences in the third quarter of 2015 because our studies on the recovery of deferred tax assets indicated that in certain stress scenarios our tax assets could not be fully realized.

Since the beginning of 2015, we had been monitoring the deteriorating economic environment in Brazil. Due to the worsening of the economic and political scenario, the foreign exchange rate devaluation intensified in the middle of the year, increasing significantly our financial expenses and reducing operating results. Therefore, we reviewed our deferred tax assets (DTA) realization studies in the third quarter of 2015 and concluded that it would not continue recording DTA beyond June 30, 2015.

We intend to expand our disclosures in future filings to provide more detailed information.

SEC Comment No. 4.

Financial Statements

Statements of Income, page F-3

4)      We note that R$358,008 of your $1,615,951 profit for the year ended December 31, 2015 was allocated to non-controlling interests. Please provide the disclosures required by IFRS 12.12, and discuss the underlying reasons for changes in the profit or loss allocated to non-controlling