Shares in steelmaker Usiminas (USIM5) continue to fall in this Wednesday’s session (24), contradicting some estimates of a recovery after the fall in the post-balance sheet session. The expected recovery would largely be due to the decision of the Executive Management Committee of the Brazilian Chamber of Foreign Trade (Gecex) to raise import taxes on 11 steel products and establish import volume quotas for these products.
Gecex’s announcement, however, was made in the middle of the afternoon last Tuesday, while the market was open, and even so the share showed no reaction, closing down 13.91%.
Some analysts attributed the drop to the market’s greater focus on the steel company’s post-1Q24 signals and the lack of details on the taxation of external steel. Thus, they projected recovery, but it did not materialize. At 3:10 pm (Brasília time) this Wednesday, USIM5 shares fell 4.07%, to R$8.74. On the other hand, others highlighted the announcement as important, but insufficient amid the invasion of “Chinese steel”. This, added to the scenario seen as less positive for USIM5, causes shares to continue falling. CSN (CSNA3) and Gerdau (GGBR4), even at a lower intensity, also did not show much enthusiasm after the announcement.
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It is worth noting that there was an increase in the steel import tariff from 14% to 25%, but this increase will now be valid for a select group of 11 types of steel products (NCMs), and will appear as a complementary rate applied only on the difference between the total import volume and the average quota recorded between 2020 and 2022, points out Genial. When there is no excess volume, the rate will remain at 14%.
“Our view is that the measure does not represent a solution that supports the full needs of the Brazilian steel industry and the number of NCMs covered is below the 30 products that the IABr had requested in its application”, assesses the research house.
The measure is taken in a context in which the Brazilian steel industry has faced difficulties with the increase in Chinese imports, price pressures and weak demand, highlights BTG Pactual. “These challenges have reduced profitability to levels similar to multi-year lows, reminiscent of the commodities recession of 2014-15. The sector has been vocal about its difficulties and the authorities have taken notice”, assesses the bank.
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For analysts, the measure could help restore the sector’s profitability, although the timing and extent are highly questionable. “It is important to note that Brazil is not alone in this fight, as many countries are adopting similar measures in response to the increase in cheap (Chinese) imports. The industry has already experienced significant capacity reductions and layoffs, prompting this response. In practical terms, this presents an opportunity for local steel producers to recover some market share from imports and adjust prices gradually”, assesses BTG.
Therefore, for the bank, although this measure may not be as broad and aggressive as it should be, it should bring relief to companies in the industry.
The news, by the way, is relatively more important for flat steel (more susceptible to import pressure). In other words, analysts emphasize that the impact is greater precisely for Usiminas, leader in the flat steel market in Brazil.
“We believe that the new tariff quota system is positive for the national steel mills under our coverage. The 11 NCMs selected to be covered by the policy represented 43% of the country’s total steel imports in 2023. Given its greater exposure to the national flat steel market, in relation to the company’s general business, Usiminas should benefit the most of the current scope of the proposed system”, highlighted Morgan Stanley, which expected a positive reaction from shares in the session before the market opened, which did not occur.
On the other hand, analysts considered that quantifying the impact is a challenge, as it depends on each company’s product mix, which is not disclosed and may vary over time, as well as the impact of the policy on the internal prices of the selected products, which is difficult to predict.
With the vision of positive news, but still insufficient to boost the shares, adding to the disappointment with Usiminas in the short term, the market remains reticent about the steel company. The 1Q24 results themselves did not deviate much from projections, but the estimate for 2Q24 was seen as quite discouraging and led to downward revisions in the market. Usiminas suggested relatively stable earnings before interest, taxes, depreciation and amortization (EBITDA) in its steel division, with stable volumes and prices, and slightly higher costs (appreciation of the real and sales mix offsetting efficiency gains ). As for its mining division, the company is guiding for flat iron ore sales in the next quarter.
“The negative market reaction to these results was due to the guidance provided by Usiminas that results will be relatively stable in its steel division in 2Q24, not specifically in relation to the numbers presented in 1Q24 – we observed that investors expected continued improvements in results , following the efficiency gains of blast furnace 3”, highlighted Bradesco BBI.
XP highlighted that, although it welcomes the company’s efforts to increase efficiency after the renovation of blast furnace 3, it also has a cautious outlook for 2Q24 following the company’s indications of stable steel volumes and prices in the next quarter, with the cost of products sold (COGS) per ton
The article is in Portuguese
Tags: didnt taxation imported steel encourage Usiminas shares sector
