Imports, stock levels affecting steelmakers' profitability - brokerage

Thursday, October 21, 2010

Increased steel imports and high stock levels in the distribution chain have weakened the performance of Brazilian steelmakers and the industry's profitability is likely to be negatively affected in the second half of 2010 and beginning of 2011, local brokerage Brascan said in a report.

Upcoming financial results will also reflect high production costs and difficulties in passing these costs on to clients, Brascan said.

The brokerage expects import volumes to slow down in the final months of the year due to inventory levels which are currently enough for four months of supply. Consequently, local steelmakers' sales could start improving from the beginning of 2011.

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In January-September, imports of steel products were 4.4Mt, up 160% year-on-year, according to figures from national steel industry association IABr.

Exports of steel products totaled 564,000t in September, with export revenues at US$418mn. From January-September, exports fell 5% to 6Mt, while export revenues increased 10.6% to US$3.8bn. However, Brascan said these figures should be analyzed with caution as company margins are usually smaller due to additional costs.

Brascan's report was prepared by analyst Rodrigo Ferraz.