--Flat-steel makers in Brazil raised prices to distributors
between 3.5% and 8% in past two weeks
--'Stickiness' of price increases will be key for companies to
recover margins after disappointing 2012
--Steel companies suffered from overcapacity, weak demand in
Brazil's industrial recession
By Paul Kiernan
RIO DE JANEIRO--Leading Brazilian producers of flat steel
carried out a round of badly needed price increases this month that
could lay the groundwork for recovery in one of the sectors hardest
hit by the country's recent economic slowdown.
Companhia Siderurgica Nacional (CSNA3.BR, SID), or CSN, on Jan.
18 raised prices by 7.2% for hot-rolled steel coil and 3.5% for
cold-rolled sheets and galvanized products, according to a person
with access to information from distributors.
Usinas Siderurgicas de Minas Gerais SA (USIM3.BR, USIM5.BR,
USNZY), or Usiminas, hiked prices by 5% for heavy plates and
hot-rolled coil last week. ArcelorMittal (MT, MT.FR) raised prices
for hot-rolled sheets by 8% and for cold-rolled and galvanized
sheets by 4%, the person said.
All three companies declined to comment on their pricing
strategies.
The question of whether companies can maintain the higher prices
will help determine their prospects for 2013, analysts say. A
weaker Brazilian real this year compared with 2012 has made inputs
and imported equipment more expensive, and local authorities raised
the minimum wage by 9%, following last year's 14% increase.
Attempts by flat-steel producers to raise prices last year
largely failed, as demand remained feeble amid an industrial
recession while capacity utilization in the overall Brazilian steel
industry hovered at just 72%. Though the government jacked up
duties for imported steel in early September, Finance Minister
Guido Mantega reportedly warned that authorities might remove the
tariffs if local producers took advantage of them to raise
prices.
CSN's shares listed in Sao Paulo have fallen 39% over the past
year, recently trading at 11.12 Brazilian reais ($5.55). Usiminas
shares are down 13% at BRL10.24.
In a report last week, J.P. Morgan said the "stickiness of
recent price increases" will be a key point for investors looking
at CSN and Usiminas, the largest Brazilian flat-steel
producers.
To be sure, both companies own subsidiaries in the distribution
segment, making it easier for them to raise prices to distributors
than to other clients such as auto makers, manufacturers or
construction companies, HSBC analyst Jonathan Brandt said in a
report last week. Since steel mills sell less than 40% of their
volumes via distributors, the latest price increases will paint an
incomplete portrait of the companies' net revenue per ton.
"While steel mills may put through price increases to the
distribution segment again and it may make for good headlines, we
question how much of this price increase will translate into an
increase in revenues and profitability," Mr. Brandt said.
Both HSBC and J.P. Morgan assign an underweight recommendation
to CSN and Usiminas.
Write to Paul Kiernan at paul.kiernan@dowjones.com
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