Brazil's steelmakers are likely to benefit in 2019 from stability in the country's macroeconomics indicators, automotive sector growth and an improvement in housing starts, according to a report by Moody's Investors Service.
The stability of Brazil's macroeconomics indicators will support growth in major steel consuming industries, while a stronger Real will "help ease costs for US dollar-priced raw materials such as iron ore," Moody's said in an 2019 outlook, foreseeing a moderate recovery in demand for steel.
"Growth is likely despite risk of political uncertainty under a new government," it said, adding there will be further opportunities as a result of greater infrastructure/heavy construction investment amid an improved business environment in Brazil.
The credit ratings agency sees a more favorable import price relationship and a low threat of significant growth in steel imports as further positive factors.
Nevertheless, Moody's forecasts Brazilian steel exports will remain low due to increased US protectionism plus "stronger competition from other producing countries such as China and Turkey."
Moody's sees Gerdau's credit quality improving and benefiting from scale, diversification and financial flexibility, while Usiminas' operating performance is expected to remain strong in 2019 "based on cost-cutting efforts" and "recovery in the automotive industry," Moody's said in the report.
However, an improvement in CSN's credit quality is dependent on further asset sales, or "other efforts to improve capital structure, reduce short-term liquidity risks."
CSN's "operating performance will remain strong in 2019, but EBITDA generation alone cannot resolve high leverage, significant debt maturities in 2019-20," Moody's said in the outlook.
