Goldman predicts steel prices further devaluation
Steel prices have fallen 31% since May 2022, potentially impacting USIM5 and CSN, with Goldman predicting further devaluation.
Goldman Sachs forecasts further devaluation in domestic steel prices, potentially affecting Usiminas (USIM5) and CSN (CSNA3). Domestic steel prices have fallen as much as 31% since May 2022, with lower international prices and weakening demand adding to the risk. The bank's report points to weak demand and an unfavorable trade balance, with flat steel posing a higher risk due to a higher premium on import parity.
Flat steel imports increased 72% in June, while exports fell 60%. Automakers reduced production, truck sales slowed, and home appliance sales returned to pre-pandemic levels. Domestic steelmakers resist price discounts, but analysts expect sustainable import parity at 30%.
Long steel consumption is down 5% year-to-date, and export demand is weak, affecting the domestic supply-demand balance. The import parity premium is relatively balanced, but industry checks suggest price discounts are being offered to encourage buying. Goldman Sachs analysts believe Usiminas and CSN are most exposed to potential price declines.
China's flat steel export prices increased by 6/t to $549/t, while domestic flat #steel prices in Brazil remained steady at R$ 4,600/t. Turkey's FOB export prices fell by 27/t to 570/t, while domestic long steel prices in Brazil remained flat at R$3,910/t. Goldman Sachs recommends buying Usiminas shares at a target price of R$ 9.80, representing a potential increase of 36.9% compared to the closing price of R$ 7.16. Gerdau's neutral rating and target price of R$ 28 represent limited upside potential. Analysts are less optimistic about CSN, with a sell recommendation and target price of R$12.50, indicating a potential devaluation of 1.4% from the previous day's closing price of R$12.68.
