Vale (VALE3), CSN (CSNA3), Gerdau (GGBR4), Usiminas (USIM5) and more: what to expect from the financial statements of mining and steel companies

The fourth quarter 2022 earnings season kicked off last week but will pick up steam in the coming days. Next 10, Usiminas (USIM5) will be the first company in the steel and mining sector to present its financial statements.

For analysts, on the other hand, the Belo Horizonte-based steel company, with its numbers, may scare a little investors unprepared for the battery of balance sheets. The company has the worst projections among its peer group, made up of Vale (VALE3), which will release its production data this Tuesday, CSN (CSNA3), CSN Mineração (CMIN3), Gerdau (GGBR4) and also from CBA (CBAV3).

“Mining companies are expected to outpace steelmakers in the fourth quarter of 2022,” says Bradesco BBI analyst team, led by Thiago Lofiego. “The latter continue to collide with the mismatch between lower prices of the products sold and higher costs”.

According to S&P Global’s Steel Business Briefing (SBB) report, average flat and long steel prices in the market decreased by 13% and 6% respectively on a quarterly basis, due to weaker demand in both Brazil and the rest of the world. abroad.

According to Instituto Aço Brasil, domestic demand for steel decreased by 12% comparing the period between October and December with the period between July and September. The demand for long steel decreased by 17% and that of flat steel by 8%.

Ultimately, these companies’ costs are expected to remain high, driven primarily by the price of mineral coal. This commodity, widely used by metallurgists in their furnaces, has skyrocketed after the war in Ukraine, as it is used by European countries as an alternative to natural gas.

“Against this backdrop, we expect steelmakers to post the weakest quarterly results, reinforcing our view that Q2 2022 results were the highest quarterly results for the industry,” the specialists at Santander Rafael Barcellos and Arthur Biscuola.

The Bank of America team expects mixed developments for the metals and mining sectors: for them, the former should be affected by lower prices and weak seasonality (particularly stronger this year, with those doing even less restructuring on their own ). ), while the second should benefit from the reopening of China, which began in December.

Other houses go in the same direction.

“The fourth quarter should show better results for mining companies and weaker results for the steel industry compared to last quarter. We expect discussions about China’s reopening affecting demand for iron ore and steel and fears of economic recession in Europe and the US,” said analysts at XP Investimentos, led by Andre Vidal.

“Usiminas, Gerdau and CBA will likely suffer from lower volumes and prices in the domestic market, while Vale and CSN should benefit from strong results in the iron ore division,” stresses Itaú BBA.

Usiminas behind Gerdau

While steelmakers are likely to do worse than mining companies, the company that opens results is, of the entire industry, the one that encourages analysts the least.

“We see Usiminas’ results bottoming out in the fourth quarter. We estimate recurring earnings before interest, taxes and amortization (Ebitda) of 493 million reais, down 41% on a quarterly basis,” explains BBI.

The Brazilian bank expects the company to bring an 11% drop in domestic steel shipments, to 833,000 tons, with weaker seasonal demand, and a 5% drop in export volumes, to 103,000 tons.

“Usiminas should once again be the negative highlight of the quarter with Ebitda contracting more than 60%, led by lower steel volumes and realized prices and costs that remain high,” says BofA, which expects Ebitda of R $461 million.

Refinitiv’s consensus forecasts that Usiminas will bring an Ebitda of R$ 477.7 million. For net profit, the projection is R $ 7.3 million and per Bottom line the projection is for a loss of R$ 22.7 million.

According to the experts, Gerdau should also be a bit frustrating, but will be saved in part by his commercial front in the United States, which will lead to a decline in performance, but less and in any case with margins still much higher than the Brazilian one.

“Margins tend to tighten in the fourth quarter. In Brazil, domestic long steel shipments are expected to decrease significantly, by about 17% QoQ, domestic prices are expected to decrease 5% to 6%, while the cost per ton will remain the same,” says the team of BBI “This should bring the Ebitda margin of the Brazilian division down to around 12.5%, against 18.4% in the third quarter”.

XP Investimento estimates stable volumes and costs on a quarterly basis in North America, despite lower realized prices pushing the margin from 32.9% to 26.4%. For the Brazil unit, brokerage expects a drop in volumes of 13%, which can mainly be explained by seasonal factors and year-end holidays, realized prices lower by 5% and fixed costs, which translate into a margin of 11.9 %.

As a result, the Ebitda margin expected by XP analysts for Gerdau, which had about 36% of its revenues coming from North America in the third quarter, is 19%, considerably higher than the 7% calculated for Usiminas.

For Gerdau, the Refinitiv consensus expects an Ebitda of R$ 3.8 billion, net revenues of R$ 18.9 billion and a net profit of R$ 1.9 billion.

CSN boosted by mining arm and Vale is a highlight

While the metallurgical companies are not very exciting, the mining companies leave observers a little more optimistic.

As already mentioned, the demand for iron ore has been increasing since the end of December, amid the end of the restrictions imposed by the Chinese government to contain the Covid-19 and also due to seasonality, in a period usually marked by the rebuilding of stocks. – this at the same time that supply is weakening on the part of producers.

CSN, therefore, should bring more balanced numbers thanks to its significant stake in CSN Mineração.

“We have increased our projections for CSN. We now estimate BRL 2.5 billion Ebitda, 13% higher than our last projection, with stronger mining results,” Morgan Stanley analysts argue. “In the steel industry, CSN is expected to be the only one to show quarterly EBITDA growth, but due to better mining results, the steel industry EBITDA is expected to decline by double digits,” adds BofA.

Morgan Stanley has increased its projection for the Ebitda of CSN Mineração, in which CSN has a stake of more than 79%, in 83%, to R$ 1.5 billion, against R$ 926 million in the third quarter. As for the Jackthe forecast is for an operating profit of R$ 2.8 billion.

BofA takes a similar view and sees CSN’s steel EBITDA down 32% QQ, to R$800 million, but with the company’s total result up 8% over the immediately preceding three months, at due to ore segment.

According to Refinitiv, CSN is expected to bring an EBITDA of R$ 2.9 billion, a turnover of R$ 10.7 billion and a net profit of R$ 922.1 million. As for CSN Mineração, the projections are for an Ebitda of R$ 1.2 billion, a turnover of R$ 3.35 billion and a profit of R$ 799.5 million.

Lastly, Vale should have results mainly driven by higher volumes sold, and the realized price of the mineral still partially divides analysts.

“Vale is expected to ship 90 million tons of iron ore in total, an increase of 16% QoQ. With this, we see an improvement in the cash cost, given the higher dilution of fixed costs, which remains at 22 dollars per tonne, down 3% in the quarter”, explain the BofA specialists. “Improved volumes coupled with higher realized prices, even though the benchmark price was down 4% for the quarter, and intermediate pricing mechanisms should lead to higher price realizations, generating more revenue.”

The BofA projection is that Vale will bring an Ebitda of 5 billion dollars, the same thing expected by Bradesco BBI and just under the 5.1 billion dollars of Santander.

“Iron ore shipments are expected to improve seasonally and we expect 91 million tonnes, up 17% for the quarter, while average prices are down 4% to about $99.8 per tonne at US$21.5 and total costs rising from US$51 to US$49,” says BBI. “We expect Vale to report iron ore production of 80 million tons, with a realized price of $95.”

Refinitiv’s consensus for Vale is US$11.3 billion in net income, US$4.7 billion in EBITDA and US$2.6 billion in net income.

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