Tag Archives: USNZY

Are Brazilian steel makers in trouble?

The Brazilian papers are saying that local steel companies are cutting domestic prices by 20%. If this is confirmed, it is a strong negative for these stocks and their export markets.

High inventories and even higher competition from overseas rivals are being blamed here. It is true that the strengthening real has made Brazil a more tempting market for Asian and even other Latin steel producers, so the competitive angle is probably true.

As for the inventories, it could be a sign of waning domestic demand . . . or simply another symptom of de facto dumping from overseas.

Either way, if this price cut is confirmed, it would be bearish for the big players. Figure that a 15% drop in prices would reduce 2011 EBITDA for companies like Usiminas (USNZY, quote), Gerdau (GGB, quote) and SID (quote) by 30%.

USNZY should be the most impacted due to its high exposure to steel:

We are also hearing that the U.S. market is now getting flooded with steel imports. Keep an eye on this because despite the bad news, steel and ore prices were still trending higher until recently.

Brazil Steel Stocks