December 26, 2008 Building up Steam

Volume 11 | Issue 6

Sermatec builds the largest high-yield boilers and steam generators in Brazil. One of the sectors that traditionally use its products, the s

Sermatec was established in 1976 as a branch of Zanini Equipamentos Pesados, to supply mechanical and electric assembly services. What would one day become the core team of Sermatec, still working at Zanini at the time, spotted a business opportunity: customers would regularly come to them needing boilers, which Zanini assembled. The team realized that they could provide another link in the value chain, and so began to build the boilers from the ground up. Where they merely installed the equipment, now Sermatec makes, sells and installs products in the customer’s plant, up to the point at which the plant goes live.

Zanini still owns about 68 percent of Sermatec. The remaining 32 percent belong to Usina Santa Elisa, which, like Zanini, is also part of Grupo Biagi, a traditional holding company in the sugar and alcohol sector in Brazil.

HIGH YIELD
Sermatec is a leading capital goods supplier due to its high quality products. Particularly its boilers and steam generators have a competitive advantage due to their high-yield grid system, which can build pressure up to 150 bar. No other manufacturer in Brazil can match that capacity. Ala Norte, in the state of Pará, has ordered a giant boiler, with greater capacity than any other in Brazil. The technology employed comes from HPB and from the Babcock and Wilcox Co., a traditional American company that has 100 years’ experience with steam generators.

Sermatec also has a fluidized bed steam generator which is sold to mining, siderurgy, and paper and cellulose companies. One unit is already installed in the state of Santa Catarina, at Rigesa, a packaging company.

In 1990 Sermatec began to work for the sugar and alcohol industry, building equipment specific to sugar and ethanol plants, such as sugar cane diffusers. The company offers, among other products, two different kinds of steam generators with high-pressure boilers. Sermatec has sold 10 complete sugar and ethanol plants to date, seven of which have been delivered or will be delivered still in 2008; the remaining three will be delivered by mid-2009.

Sermatec has begun to offer ethanol distilleries that differentiate themselves from the competition thanks to the high-yield pervaporation stage. “Sermatec’s products have the highest yield for each process,” says Cristiana Câmara, marketing manager. Câmara explains that, when you produce commodities, as is the case with Sermatec’s customers, profitability is driven by yield, so the main concern for a plant shopping for capital goods is to purchase the equipment with the highest possible yield.

To keep up with demand, Sermatec employs 2,400 people in facilities which are spread over 600,000 square feet of buildings, sitting in 2,500,000 square feet of real estate.

About 25 percent of Sermatec’s revenues come from exports. There is even a trading company in its premises: ZACI, or Zanini Comércio Internacional. Sermatec has exported steam generators to nearly all countries in Central America and to a number of countries in South America. In 2006 it exported a sugar cane diffuser to the USA, to a company in Louisiana. That equipment, which can process up to 12,000 tons of sugar cane per day, includes technology that is pioneering in Brazil.

Sermatec has a lot of experience with high-risk, mission-critical equipment. A plant stopped for two hours due to equipment failure means a huge loss of revenue. So Sermatec developed the competence to build highly reliable equipment, which, along with Sermatec’s competitive prices, helps the company place its products in the foreign market. Câmara proudly proclaims that “it’s easy for us to export because our product really is good”.

FROM SUGAR TO ENERGY
In Brazil today the most important product of a sugar and ethanol plant is neither sugar nor ethanol, but energy. Sermatec’s boilers make it possible for a plant to generate all the energy needed for its processes, and also to sell surplus energy. Sugar and alcohol plants sell their surplus energy at public auctions in Brazil. Once again, superior yield is a critical competitive advantage.

In time ethanol will become more important but, right now, the price of ethanol is too low and the price of energy is attractive. Brazilian plants are currently suffering from the price of ethanol and sugar. As it turns out, current price levels make selling energy more profitable nowadays.

Why the low price of ethanol and sugar? “Too much investment,” Câmara explains. With the promise of an ethanol boom, too many companies started or expanded plants, and the Law of Offer and Demand went to work. “It would be great if we could export the ethanol, but these days supply is higher than demand. On the other hand, just about country has an energy problem.” The government keeps trying to help solve the demand problem, though. Câmara says that “President Lula has been trying to sell Brazilian ethanol abroad at every opportunity.”

There is a lot of bad press about the ethanol industry but Câmara is relieved to report that the public is beginning to understand the difference between ethanol made from sugar cane (in Brazil) and ethanol made from corn (elsewhere). Production of ethanol from corn is not efficient, and about four times more costly than production from sugar cane, which takes up only 1 percent of arable land. Public opinion complains about the supposed devastation of the Amazon but the sugar plants served by Sermatec are thousands of miles away from the Amazon. Complaints about labor exploitation are common as well, even though harvesting in São Paulo is highly mechanized.

GREAT ACCOMPLISHMENTS
Sermatec’s sales have grown steadily over the past few years and are still growing. Pending orders go all the way to 2010. According to Câmara, “if the private sector invests in Sermatec its fine. If it cuts back or inflation grows, things could get trickier, but Brazil is going through a good period of sustainable growth. For the next few years the capital goods sector looks promising.”

Meanwhile, the orders keep coming in. Sermatec is building and will install two ethanol plants in the Dominican Republic. All sucrose extraction equipment and similar processing hardware will come from Sermatec.

ETH Bioenergia, founded in 2007 and controlled by Grupo Odebrecht, has purchased four steam generators with capacities ranging from 230 to 260 tons per hour of steam. ETH Bioenergia is young but ambitious: It plans to deploy 11 ethanol plants in the states of Mato Grosso do Sul, Goiás and São Paulo over the next 10 years. Its goal is to become one of the main players of the sector in Brazil, processing over 50 million tons, and overtake Cosan, currently the largest sugar and alcohol company in Brazil.

Grupo Equipav, which traditionally works in the road construction and maintenance business, joined the sugar and alcohol sector a few years ago. Newton Salim Soares, Superintendent of Equipav, says that the group is the largest generator of energy from biomass in Brazil. Equipav is building two plants under the Biopav brand in São Paulo. Sermatec is supplying the greatest boiler ever seen in the sugar and alcohol sector in Brazil, at 90 bar of pressure, which will translate into more megawatts in the energy generation process. Besides this boiler, HPB and Sermatec will supply three other steam generators ranging from 65 to 67 bar to Equipav, all with a single drum design and humidity from 50 percent to 55 percent and an 87 percent energy yield. The boilers will be supplied in a turnkey modality to the Promissão and Brejo Alegre units, both in São Paulo.

The project was profiled at Exame, the foremost business magazine in Brazil. It looks like the sugar and alcohol sector can get good press too.

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