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USIMINAS: CHALLENGES AND OUTLOOK Brazil Day 2003

USIMINAS: CHALLENGES AND OUTLOOK Brazil Day 2003. New York, November 17th, 2003. Rinaldo Campos Soares CEO. Usiminas System is the Leading Flat Steel Producer in Latin America. Installed Capacity: 9.5 million tons. 2002 Net Sales: R$ 6.6 billion. 2002 EBITDA: R$ 2.4 billion.

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USIMINAS: CHALLENGES AND OUTLOOK Brazil Day 2003

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  1. USIMINAS: CHALLENGES AND OUTLOOKBrazil Day 2003 New York, November 17th, 2003 Rinaldo Campos Soares CEO

  2. Usiminas System is the Leading Flat Steel Producer in Latin America Installed Capacity: 9.5 million tons 2002 Net Sales: R$ 6.6 billion 2002 EBITDA: R$ 2.4 billion Employees: 18,000 Comprehensive range of flat steel products: from slabs to coated

  3. Usiminas System Mission is to Create Value With Social Responsibility Supplying competitive products and services to our customers Promoting the well being and development of its employees Generating social value in a responsible manner Creating Shareholder Value

  4. Usiminas Investment Dynamics

  5. Usiminas: A History of Continuous EvolutionPrivatization, Modernization, Investments Adjustment to 5.0 million t/year PRODUCTION CAPACITY Privatization 5.0 million t/year 4.5 million t/year Energy Power Plant Optimization 4.2 million t/year 3.5 million t/year Restructuring of Cosipa US$1.2 billion 0.5 million t/year Optimization Plan US$827million Modernization Plan US$850 million 1962 1980 1986 1991 1996 1999 2002

  6. Over the Past Decade (1992 – 2002) Investments in Usiminas and Cosipa Amounted US$ 3.3 Billion Usiminas Cosipa Technological updating Production optimization Environmental protection Cost reduction 775 226 Total 2.1 billion Total 1.2 billion 290 Environmental protection 754 182 304 548 170 Continuous casting line and converter Maintenance of production capacity Quality improvement

  7. The Investment Cycle Has Been Concludedand is Already Producing Results Trend in Investments and EBITDA R$ million EBITDA Investments 7.1 million tons Crude Steel Production 9.2 million tons Source: Usiminas Consolidated Basis - 3rdquarter 2003 annualized

  8. This is How We Have Achieved a SystemWith a Solid Market Position 2003 New Opportunities ... DUFER COSIPA 1991 USICENTRO Strategy USIMINAS MECÂNICA USIPARTS STEEL 80 20 NEW BUSINESSES MRS RIO NEGRO USIMINAS UNIGAL FASAL USIFAST SIDERAR SIDOR

  9. Today, Usiminas System has a Solid Market Position

  10. Today, the System is Solid and Fulfills its Original Goals To consolidate its leadership in Brazil To achieve greater presence in South America and improve its international profile To ensure a comprehensive logistics structure To offer higher value-added products

  11. Leading Market Share Usiminas Cosipa Up to September 2003 AVERAGE Large-Diameter Tubes Auto-Parts Car Manufacturers Electric/Electronic Equipment Civil Construction Household Appliances Small-Diameter Tubes Distributors Packaging

  12. Cosipa Usiminas The System is an Important Brazilian Exporter Usiminas System: Breakdown by Market million tons million tons 4.4 4.0 4.0 3.8 3.6 Exports 21% 22% 25% 2.5 42% 41% 13% 79% 78% 75% Domestic Market 87% 58% 59% Note:Including Slabs

  13. Our Product Line Ranges FromSlabs to Coated Products Tons /year (million) Annual Production Capacity 7 Cosipa 5.8 6 Usiminas 5 2.3 3.7 4 1.2 3 2.0 1.5 2 3.5 1.0 2.5 1 0.4 0.4 1.1 1.0 0.4 0 Slabs Heavy Plates Hot Rolled Cold Rolled Electro Galvanized Hot Dip Galvanized

  14. Northeast Northeast JIT JIT USIMINAS USIMINAS / / JIT JIT JIT JIT JIT JIT JIT JIT JIT JIT JIT JIT JIT JIT CURITIBA CURITIBA COSIPA COSIPA Steel Plant Steel Plant Port Port Service Center Service Center PORTO PORTO ALEGRE ALEGRE JIT JIT Distribution Center Distribution Center JIT JIT Distribution Center under Study Distribution Center under Study JIT JIT Usiminas has Integrated Logistics that Provides the System a High Level of Competitiveness Usiminas System Logistics Network

  15. Usiminas System is Already Among the 20 Largest World Producers Production in million tons (Crude Steel) 1) Arcelor............................................. 44 34.8 2) LNM Group................................ 29.8 3) Nippon Steel............................ 28.9 4) NKK/ Kawasaki................... 28.1 5) Posco.................................................. 19.5 6) Baosteel.......................................... 16.8 7) Corus ................................................. 16.4 8) ThyssenKrupp..................... 16º 15.0 9) Riva........................................................ 13.0 10) US Steel.................................... Installed Capacity: 9.5 Mt Usiminas/Cosipa................. Source: WSD / 2002

  16. Usiminas/Cosipa have a Substantial Competitive Edge in Costs and Margin EBITDA Margin (%) In Relation to the World’s Largest Steel Mills Baosteel Sumitomo Usiminas/Cosipa Posco Magnitogorsk NKK/Kawasaki Nucor Arcelor USX Thyssen Ispat Nippon Corus Production = 5 million tons Hot Rolled Steel Costs (US$/t) Note: 2002 data, except for EBITDA margin for Baosteel (2000) and NKK/Kawasaki (2001). Data n/a for Riva and Sail. Gerdau/Co Steel not included (non-flat)

  17. LOOKING AHEAD

  18. The Steel Industry is Undergoing a Transformation, Creating New Challenges and Opportunities

  19. The Global Steel Industry Faces at Least Six Challenges Geographic Migration of Production Regional Consolidation Globalization Global steel industry Global Alliances Consolidation of the Russia-Ukraine Export Complex China’s Growth

  20. Which Has Led Us to Establish a Value Creation Agenda Some Initiatives Stand out as Priorities Low Priority Initiatives Tight Control on Investments To Enhance IR Relationship Rationalize fixed assets To optimize loans and hedging portfolio To integrate Usiminas/ Cosipa Management To reduce costs: continuous improvement, sourcing, SCM Relative Difficulty To create commercial alliances To Update Commercial Strategy To Optimize Model for Commercial Operation To optimize subsidiaries portfolio/governance To develop new markets To develop new products To upgrade distribution system Strategic Alliances/ Acquisitions To Reduce Debt High Impact on Value Creation Over Medium Term Smaller Greater

  21. Our Value Creation Agenda is Supported by a Broad-Based Process of Preparing the Organization Value Creation Agenda Commitment to the Stockholder VBM * Metrics Planning Management Qualified Manpower (More than 500 people trained) *Value Based Management

  22. Three Financial Management–Related Initiatives Low Priority Initiatives Tight Control on Investments To rationalize fixed assets To Enhance IR Relationship Integrar gestão Usiminas/ Cosipa To optimize loans and hedging portfolio To reduce costs: continuous improvement sourcing, SCM Relative Difficulty To create commercial alliances To optimize model for commercial operation To develop new markets To develop new products To optimize subsidiaries portfolio/governance To upgrade distribution system Strategic alliances/ acquisitions To Reduce Debt High Impact on Value Creation Over Medium Term Smaller Greater

  23. Over the Next Few Years, Investments are Expected to Remain Low (R$ billion) Forecast Capex Investment /EBITDA 2.2 0.5 0.9 0.2 0.1 0.1 0.1 Source: Usiminas

  24. Total Debt Total Debt/Ebitda We Will Continue to Emphasize Debt Reduction CONSOLIDATED DEBT R$ million R$/US$ FX Rate 1.96 2.16 2.30 2.68 2.32 2.84 3.89 3.53 3.35 2.87 2.92 Source: Usiminas

  25. Major Commercial Goals and Initiatives Low Priority Initiatives Tight Control on Investments To Enhance IR Relationship To rationalize fixed assets To Update Commercial Strategy Integrar gestão Usiminas/ Cosipa To optimize loans and hedging portfolio To reduce costs: continuous improvement sourcing, SCM Relative Difficulty To create commercial alliances To Optimize Model for Commercial Operation To develop new markets To develop new products To optimize subsidiaries portfolio/governance To upgrade distribution system Strategic alliances/ acquisitions To reduce debt High Impact on Value Creation Over Medium Term Smaller Greater

  26. Usiminas System Expects to Sustain an Important Share in the Domestic Flat Steel Market The System tends to maintain sales volume and domestic market leadership, in spite of the arrival of new competitors New Competitors 10,419 9,871 9,352 Total Demand 8,768 8,650 8,576 Cosipa Usiminas Forecast Note.: Excludes Slabs

  27. Strategic Alliances, Acquisitions and Cosipa’s Integration are Key Areas Low Priority Initiatives Tight Control on Investments To Enhance IR Relationship To rationalize fixed assets To Integrate Usiminas/Cosipa Management To optimize loans and hedging portfolio To reduce costs: continuous improvement sourcing, SCM To update commercial strategy To create commercial alliances Relative Difficulty To optimize model for commercial operations To develop new markets To optimize subsidiaries portfolio/governance Strategic Alliances/ Acquisitions To upgrade distribution system To reduce debt High Impact on Value Creation Over Medium Term Smaller Greater

  28. Steel Production is Migrating to Emerging Market Countries % Global Production 100% • Annual forecasted growth rate in capacity up to 2010 is 1.7% p.a. • 0.2% p.a. industrialized countries • 3.3% p.a. emerging countries 80% 42% 48% 69% 60% 81% 85% 40% 58% 52% 20% 31% 19% 15% 0% Industrialized Countries 1970 1980 1990 2000 2010 Emerging Countries

  29. Brazil has the Advantages to Play a LeadingRole in the Steel Industry Future Abundant high-quality iron ore Favourably located mills with modern technology Competitive costs Quality in products and environmental management Predominantly Brazilian-owned and 100% privatized Skilled labor force (operation and management)

  30. Consolidation Consolidation 94% Consolidation 80% 60% 70% 65% 50% Fragmentation 48% 36% 30% 25% 25% 17% Packag- ing Civil Construct. Auto- motive Shipyards Iron Ore Steel Equipment Steel ChemicalProducts Gases Pulp Stain- less Steel Coal Aluminum Consumers Steel Suppliers Other Products The Steel Industry is More Fragmented than its Customers and Suppliers Participation of the Five Largest Companies Sources: IBS/ Usinor - Others Usinor Presentation. New York,

  31. The World Steel Industry is Consolidating Total Production and Share in the World Market of the 10 Largest Steel Groups Production (million tons) Share in world production (%) 230 211 195 165 27 26 24 20 1998 1999 2001 2002 1998 1999 2001 2002 Source: USIMINAS The production capacity of the ten largest steel mills is expected to exceed 300 million tons by 2007

  32. The domestic steel industry should be restructured to be competitive in the world steel industry, which is undergoing a consolidation process. The restructuring is to be led by domestic groups.The following step could be the globalization of these companies. Usiminas is prepared and determined to lead this process - Integration with Cosipa; - Strategic investments; - Technological alliance with Nippon Steel, Are already advances in this direction Usiminas Has Led and is Well Positioned toContinue to Lead the Brazilian Steel IndustryRestructuring Process

  33. FINAL MESSAGES

  34. Absolute leader in the Latin American flat steel business Stockholders with an outstanding industrial tradition and long-term focus in the steel sector and in Usiminas A 41-year history of leadership, culture of quality, and development Over the past 10 years Usiminas has undertaken major investments . . . Usiminas Has a Strong Base to Move Forward and a Solid Value Creation Agenda

  35. . . . Building a solid system which has now reached its goals Leadership of the Brazilian market Solid cash generation and financial structure Strong logistics infrastructure Broad-based portfolio of high quality products Presence and well-founded position in the international scenario Usiminas Has a Strong Base to Move Forward and a Solid Value Creation Agenda

  36. Usiminas has defined and is executing a clear Value Creation Agenda Controlling investments, reducing debt, enhancing shareholder value Developing strategies for domestic commercial activities and exports Acting on and moving forward with the opportunities for consolidation and globalization Usiminas Has a Strong Base to Move Forward and a Solid Value Creation Agenda . . .

  37. Cosipa has already brought a wealth of know-how and benefits . . . . . . There are still further opportunities for synergies in the System Usiminas is prepared and determined to maintain its leadership in the sector’s consolidation – continuously examining the feasibility of new opportunities . . . Usiminas’ Strategy Maximizes the Transformation that is Taking Place in the Industry CONSOLIDATION, globalization, deconsctruction Consolidation will continue to be an important source of value

  38. Taking advantage of the “deconstruction” of the steel chain in some countries Strategic presence in Sidor and Siderar Development of higher value-added exports Over the medium term, we expect to make further headway in international alliances and partnerships Over the long term we may pursue opportunities for the acquisition of overseas assets . . . Usiminas’ Strategy Maximizes the Transformation that is Taking Place in the Industry Consolidation, GLOBALIZATION, DECONSTRUCTION Globalization should be “from the inside out” and is expected to continue to go forward

  39. Disclaimer “Declarations contained in this presentation regarding the business outlook of the Company, projections of operational and financial results and references to potential growth of the Company constitute mere forecasts and were based on the expectations of the Management in relation to its future performance. These expectations are highly dependent on market behavior, on the economic situation in Brazil, the industry and international markets, and are therefore subject to change.”

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