Grupo Simec, S.A.B. de C.V. Stock

Grupo Simec, S.A.B. de C.V. operates as a manufacturer, processor and distributor of special bar quality (SBQ) steel and structural steel products with production and commercial operations in the United States of America, Mexico, and Brazil. The company is a subsidiary of Industrias CH, S.A.B. de C.V.

The company's SBQ products are used across a broad range of highly engineered end-user applications, including axles, hubs and crankshafts for automobiles and light trucks, machine tools and off-highway equipment. The company's structural steel products are mainly used in the non-residential construction market and other construction applications.

The company focuses on the Mexican and the U.S. specialty steel markets by providing high value-added products and services from the company's strategically located plants. The quality of the company's products and services, together with cost benefits generated by the company's facility locations, has allowed the company to develop long standing relationships with many of the company's SBQ clients, which include Mexico and the U.S.-based automotive and industrial equipment manufacturers and their suppliers. In addition, the company's facilities located in the northwest and central parts of Mexico allow the company to serve the structural steel and construction markets in those regions and southwest California with an advantage in the cost of freight over competitors, which do not have production facilities in such regions.

In the United States of America, Mexico and Brazil, the company owns and operates 19 steel making, processing and/or finishing facilities with a combined annual crude steel installed production capacity of 6.0 million tons and a combined annual installed rolling capacity of 5.8 million tons. The company owns both mini-mill and integrated steel making facilities, which give the company the flexibility to optimize the company's production and reduce production costs based on the relative prices of raw materials (e.g., scrap for mini-mills and iron ore for blast furnace).

The company owns and operates a mini-mill in Guadalajara, Jalisco, Mexico; a mini-mill in Mexicali, Baja California Norte, Mexico; two mini-mills in Apizaco, Tlaxcala, Mexico; a cold finishing facility in Cholula, Puebla, Mexico; two mini-mills in San Luis Potosí, San Luis Potosí, Mexico; a mini-mill in Canton, Ohio, an integrated facility in Lorain, Ohio and value-added rolling and finishing facilities in Lorain and Massillon, Ohio; Lackawanna, New York and Solon, Ohio, all of which the company owns through its majority-owned subsidiary, Republic; and a mini-mill and rebar and wire rod rolling mill in Pindamonhangaba, São Paulo (Brazil), a mini-mill in Cariacica, Espirito Santo (Brazil) and the company owns and operates rolling and finishing facilities in Itauna, Minas Gerais (Brazil).

Business Strategy

The company's strategy includes focusing on high margin and value-added products; building on the company's strong customer relationships; and pursuing strategic growth opportunities.

Products

The company produces a wide range of value-added SBQ steel, long steel and medium-sized structural steel products. In the company's Mexican facilities, the company produces I-beams, channels, structural and commercial angles, hot rolled bars (round, square and hexagonals), flat bars, rebars, cold finished bars and wire rods. In the company's U.S. facilities, the company produces hot rolled bars, cold finished bars, semi-finished tube rounds and other semi-finished trade products. In the company's Brazil facilities, the company produces rebars, I-beams, channels, structural and commercial angles. The following is a description of these products and their main uses:

I-beams. I-beams, also known as standard beams, are 'I' form steel structural sections with two equal parallel sides joined together by the center with a transversal section, forming 90º angles. The company produces I-beams in its Mexican and Brazil facilities and they are mainly used by the industrial construction sector as structure supports.

Channels. Channels, also known as U-Beams because of their 'U' form, are steel structural sections with two equal parallel sides joined together by its ends with a transversal section, forming 90º angles. The company produces channels in its Mexican and Brazil facilities, and they are mainly used by industrial construction sector as structure supports and for stocking systems.

Angles. Angles are two equal sided sections joined by their ends with a 90º angle, in an 'L' form. The company produces angles in its Mexican and Brazil facilities, and they are used mainly by the construction and furniture industries as joist structures and framing systems.

Hot Rolled Bars. Hot rolled bars are round, square and hexagonal steel bars that can be made of special or commodity steel. The construction, auto part and furniture industries mainly use the round and square bars. The hexagonal bars are made of special steel and are mainly used by the hand tool industry. The company produces the steel sections in its Mexican and the U.S. facilities.

Flat Bars. Flat bars are rectangular steel sections that can be made of special or commodity steel. The company produces flat bars at its Mexican facilities. The auto part industry mainly uses special steel as springs, and the construction industry uses the commodity steel flat bars as supports.

Rebar. Rebar is reinforced, corrugated round steel bars with sections from 0.375 to 1.5 inches in diameter, and the company produced rebar in the company's Mexican facilities and in the company's Brazil facilities. Rebar is only used by the construction industry to reinforce concrete. Rebar is considered a commodity product due to its general acceptance by most consumers of industry standard specifications.

Cold-finished Bars. Cold-finished bars are round and hexagonal SBQ steel bars transformed through a diameter reduction process. This process consists of reducing the cross-sectional area of a bar by drawing the material through a die without any pre-heating; or turning or 'peeling' the surface of the bar. The process changes the mechanical properties of the steel, and the finished product is accurate to size, free from scale with a bright surface finish. The company produces these bars in its Mexican and the U.S. facilities, primarily to supply the auto part industry.

Sales and Distribution

The company sells and distributes its steel products throughout North America. The company also exports steel products from Mexico to Central and South America and Europe. In 2022, approximately 20% of the company's steel product sales in tons represented SBQ steel products, of which the company sold 45% to the auto part industry, 46% to service centers and the remaining 9% to other industries.

A significant portion of the company's sales in the United States of America and Canadian markets came from contractual long-term agreements that establish minimum quantities and prices, which are adjustable based on fluctuations of prices of key production materials. The remainder of the company's sales in the United States of America and Canadian markets were spot sales either directly to end customers through the company's sales force or through independent distributors. The company sells to customers in the United States of America and Canadian markets through a staff of professional sales representatives and sales technicians located in the major manufacturing centers of the Midwest, Great Lakes and Southeast regions of the United States of America.

The company sells to the Mexican market through a group of approximately 100 independent distributors, who also carry other steel companies' product lines, and through the company's wholly-owned distribution center in Guadalajara. The company's sales force and distribution center are an important source of information concerning customer needs and market developments. By working through the company's distributors, the company has established and can maintain market leadership with small-and mid-market end-users throughout Mexico. The company's domestic customers are highly service-conscious.

The company distributes its exports outside North America primarily through independent distributors who also carry other product lines.

The company's major direct and indirect customers span throughout numerous market sectors, including automotive, manufacturing, industrial equipment and defense.

The company's U.S. facilities are strategically located to serve the majority of consumers of SBQ products in the United States of America. The company's U.S. facilities ship products between their mills and finished products to customers by rail and truck.

The company's major customers in 2022 included Pires Do Rio Cibraco Comercio e Industria de Ferro e Aco, Ltda., Marson Distribuicao, Ltda, Aco e Aco Vergalhoes Ltda, Udiaco Comercio e Industria de Ferro e Aco Ltda, UK Industria de Molas e Grampos, Ltda, SAE Towers Brasil Torres Trans, Ltda, Comercio de Ferro Arevalo & Junior Eireli, Arcelor Mittal Brasil, SA, Aco Fera Com Ferro e Aco Ltda, Cedisa Central de Aco, SA, Automolas Equipamentos Ltda, Fama Do Brasil, S A, MKRAFT Comercio de Metais Ltda, and RDG Acos Do Brasil, SA.

Raw Materials

Ferroalloys, Electrodes and Refractory Products

For the company's Mexican operations, the company buys most of its manganese ferroalloys from Compañía Minera Autlán, S.A., Autlán Metal Services, S.A. de C.V., Elmet, S.A. de C.V., Marco Metales de Mexico, S. de R.L. de C.V., Metaloides, S.A. de C.V., Micro Abrasivos, S.A. de C.V.and Distribuidora de Aleaciones y Metales, S.A. de C.V. The company's U.S. facilities purchase most of their ferroalloys from Affival Inc., Kennecott Molybdenum Company, Vale Americas Inc., Minerais U.S. LLC, Greenwich Metals Inc. and BPI Inc. The company's Brazil facilities purchase most of their ferroalloys from Multiligas Eireli. Ltda, Comercial Cometa Industria y Comercio Ltda., Fertileg Ferro Liga Ltda, Granha Ligas Ltda., and Cia de Ferro Ligas de Bahia Ferbasa.

For the company's Mexican operations, the company obtains electrodes used to melt raw materials (scrap metal) from Jilin Carbon Co. Ltd., Interfer Edelsthal H. Mbh, Duracarbon Latinoamerica LCC, FRC Global Inc, CNBM International Corp, Dalian Xihua Refractories Materials Co., and HEG Limited. The company's U.S. facilities purchase most of their electrodes from Sangraf International and Starex Inc. The company's Brazil facilities purchase most of their electrodes from Jilin Carbon Import Cimm Group Co. Ltd and Export Company and Dura Carbon Singapur.

The company purchases its refractory products for its Mexican operations from Vesuvius de Mexico, S.A. de C.V., Magnesita Refractories Mexico, S.A. de C.V., Magna Refractarios Mexico, S.A. de C.V., FRC Global Inc, Puyang Refractories group Co. Ltd. Kumas, Manyezit Sanayi A.S., Calderys France S.A.S., and Rectix Materiales Refractarios, S.A. de C.V. The company's U.S. facilities purchase most of their refractory products from RHI US, Inc., Vesuvius USA, Corp., Magna a Division of Timab, Vibrantz Minerias LLC, Harbison-Walker Refractories Company and FRC Global Inc. The company's Brazil facilities purchase most of their refractory products from Magnesitas Navarrasm S.A., Vesivius and Magnesita Refractaries Mexico S.A. de C.V.

Electricity

Electricity accounted for 7% in 2022 of the company's manufacturing conversion in the company's Mexico facilities and is supplied by the Comisión Federal de Electricidad (CFE) for basic service and Iberdrola for qualified service. It accounted for 9% in 2022 of the manufacturing conversion cost in the company's U.S. operations and is supplied by American Electric Power Company, Archer Energy, National Grid, The Illumination Company, New York Power and Ohio Edison. It accounted for 5% in 2022 of the manufacturing conversion cost in the company's Brazil operations and is supplied by Ecom Energia Ltda., Comercializadora de Energiaeletrica Ltda. and Comerc Ltda.

Regulation

The U.S. Operations

Environmental Matters

The company's Lorain, Ohio plant (which is not in operation) and the company's Canton, Ohio facility each are subject to the Maximum Achievable Control Technology ('MACT') standard for Electric Arc Furnaces as an 'area source.'

In the United States of America, the federal Environmental Protection Agency has issued rules imposing inventory and reporting obligations to which some of the company's facilities are subject, and has also issued rules that will affect preconstruction permits for the company's facilities where increases in greenhouse gas pollutants are contemplated.

In the United States of America, the federal Environmental Protection Agency has in the past introduced regulation regarding the phasing out of polychlorinated biphenyl ('PCB') containing fluid in equipment that the company uses at many of its U.S. facilities.

Mexican Operations

The company is subject to Mexican federal, state and municipal laws, administrative regulations and Mexican Official Rules (Normas Oficiales Mexicanas) relating to a variety of environmental matters, anti-trust matters, trade regulations, and tax and employee matters.

Environmental Matters

The company is subject to various Mexican federal, state and municipal laws, administrative regulations and Mexican Official Rules (Normas Oficiales Mexicanas) relating to the protection of human health, the environment and natural resources.

The major federal environmental laws applicable to the company's operations, among others, are the General Law of Ecological Balance and Environmental Protection (Ley General del Equilibrio Ecológico y la Protección al Ambiente or 'LGEEPA') and its regulations, which are administered and overseen by the Ministry of the Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales or 'SEMARNAT') and enforced by the Ministry's enforcement branch, the Federal Attorney's Office for the Protection of the Environment (Procuraduría Federal de Protección al Ambiente or 'PROFEPA'); (ii) the General Law for the Prevention and Integral Management of Waste (Ley General para la Prevención y Gestión Integral de los Residuos or the 'Law on Wastes'), which is also administered by SEMARNAT and enforced by PROFEPA; (iii) the National Waters Law (Ley de Aguas Nacionales) and its regulations, which are administered and enforced by the National Waters Commission (Comisión Nacional de Agua), also a branch of SEMARNAT; and (iv) the Federal Law on Environmental Responsibility (Ley Federal de Responsabilidad Ambiental), which is also administered by SEMARNAT and enforced by PROFEPA.

Antitrust Matters

The company is also subject to the Mexican Antitrust Law (Ley Federal de Competencia Económica), which regulates monopolies and monopolistic practices in Mexico and requires Mexican government approval of certain mergers, acquisitions and joint ventures.

Measurements Law

Mexico's Ministry of Economy (Secretaría de Economía), through the General Rules Department (Dirección General de Normas or 'DGN'), promulgates regulations regarding many products that the company manufactures. Specifically, pursuant to the Measurements Law (Ley Federal sobre Metrología y Normalización), the DGN issues specifications on the quality and safety standards for the company's product lines.

Brazil Operations

The company produces according to technical specifications of the Brazilian standard ABNT NBR 7480:2007 for steel bars and wires designed for the reinforcement for concrete structures. The company's products are also registered with the Brazilian National Institute of Metrology, Quality and Technology (INMETRO), in accordance with Resolution CONMETRO No. 05, dated May 6, 2008, and comply with conformity assessment regulations, including Ordinance No. 73, dated March 17, 2010, and with compulsory product certification regulations.

The company has received environmental permits from the Sao Paulo State, for which hydrological studies and feasibility of groundwater have been conducted, such permits include a license granted by the Ministry of Environment of Sao Paulo and an operations license granted by the Ministry of Environment CETESBE Sao Paulo State Companhia.

Competition

Mexico

The company competes in the Mexican market with a number of producers, including Deacero, Talleres y Aceros, S.A., Grupo Acerero, S.A. de C.V., ArcelorMittal Lazaro Cardenas, S.A. de C.V., Ternium Mexico, S.A. de C.V., Grupo Acerero Fonderia, Suacero, S.A. de C.V. and Gerdau Corsa.

Brazil

The company's main competitors in the Brazilian market are ArcelorMittal Brazil, CSN, Gerdau, Sinobras, Usiminas, Ternium Do Brasil, Vallourec and Villares Metals.

History

Grupo Simec, S.A.B. de C.V. was founded in 1934. The company was incorporated under the laws of Mexico in 1990.