Brazilian steelmaker Cia Siderurgica Nacional SA (CSN) announced it has increased its stake in Usinas Siderurgicas de Minas Gerais SA (Usiminas). CSN is also mulling bolstering its shareholding of its main rival on the Brazilian flat steel products market. The investment has seen CSN hike its share in the voting capital of Usiminas to 5.03%.

In a statement Thursday, Paulo Penido Pinto Marques, CSN investor relations director announced the acquisition, signaling the hike and the increased voting shares. CSN announced it had acquired 4.99% of Usiminas’ preferred shares on the 13 Jan 2011. According to Marques, CSN continues to analyze strategies regarding its investment in Usiminas, and may acquire further shareholdings in the Minas Gerais-based steelmaker.

However, pundits have reiterated that CSN’s move may have been chiefly a financial investment, given the fact that currently, Usiminas’ share values are currently low and should rise in coming months. The potential hike in its shareholding to a majority controlling stake however still remains another of CSN’s possible moves.

Marques noted further in his statement that eventual additional acquisitions could lead to alterations in the control structure or in the administrative structure of Usiminas. He however indicated that CSN has no immediate plans to increase its shareholding to more than 10 per cent.

Other than that, analysts have argued that the possibility of a merger between CSN and Usiminas is highly unlikely, given the unpredictable reaction such a move might elicit from the regulatory authorities and the firms’ shareholders. That is largely because a merger between Usiminas and CSN would create a near-monopoly in flat steels, a move Brazilian regulatory agencies may oppose.

Usiminas’s and CSN’s combined capacity of 15 million tons a year would dominate the market, and that could be unfavorable for consumers even thought the steelmakers themselves would probably make cost savings, said analysts.

CSN’s total investment in Usiminas now amounts to about 1 billion Brazilian reals, equivalent to about 2% of CSN’s market capitalization, according to Correa. According to Brazilian Steel Institute IABR, Brazilian steelmakers sold 11.7 million metric tons of flat products to the domestic market in 2010, while 4 million tons were imported.

Usiminas shares are currently cheap because Brazilian flat products steelmakers have been hit by stiff competition from imported steel and the strong real, which makes exporting more difficult, analysts said. Even so, the share value could rise within six months to a year.