Thursday, 30 Jun 2011
Brazil's steel industry is "almost at crisis point," due to the country's strong currency and soaring raw materials costs
Mr Marcos Assumpcao head of natural resources equity research at Itau BBA said that "There's been a sharp fall in Brazilian steelmakers' profitability. In early 2008, EBITDA margin levels were above 40%: they're close to 10% now.”
Mr Assumpcao said that "Coal prices have risen even more than iron-ore prices which is damaging to Brazilians.”
Steelmakers have been hit by soaring prices for raw materials, including metallurgical coal and iron ore, prices for which reached record high levels earlier this year as a result of high Chinese demand. Some steelmakers, including Companhia Siderurgica Nacional SA, Usinas Siderurgicas de Minas Gerais SA and Gerdau SA have intensified their own iron ore production activities in Brazil to shield themselves from high ore prices. However, they are unable to hedge adequately against surging coal prices as Brazil is deficient in metallurgical coal and is therefore dependent on coal imports.
Metallurgical coal quarterly contract prices reached an all-time high of around USD 330 a metric tonne on global markets in the second quarter, while spot iron-ore prices touched USD 170 a tonne.
In addition to the pressure from coal and ore costs, which account for an ever growing proportion of steel production costs, Brazilian steelmakers have also suffered from the appreciation of the real, which has boosted local operating costs.
Mr Assumpcao said that "The real has appreciated much more than currencies in other steel producing countries.” (sourced from MarketWatch)
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