Vermilion’s analysts believe Brazil continues to emerge as the short-term global leader in Latin America and that there are plenty of individual opportunities there.
Banco Fator says the steel industry in Brazil and worldwide will have a slow recovery in 2012, affected by the crisis in Europe and deceleration of China’s economy. For this reason, they do not recommend the sector in the short and medium term.
The battle for control of one of Brazil’s biggest steel makers is heating up as Japanese interests are reportedly mulling the purchase of $2.9 billion worth of Usiminas stock.
As Brazil’s steel companies reel under the pressure of a strong domestic currency and high iron ore costs, weaker competitors are creating trading opportunities as they struggle to stay relevant.
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.
Cable company Net Servi