Oct. 22 (Bloomberg) -- Usinas Siderurgicas de Minas Gerais SA, the second-largest Brazilian steelmaker, said third-quarter profit topped analysts’ expectations after the company restarted idled output because of a recovery in demand.

Net income fell to 454 million reais ($262 million), or 92 centavos a share, from 588 million reais, or 1.19 reais, a year earlier, the steelmaker said yesterday in a regulatory filing. That compared with an average estimate of 400.5 million reais of three analysts surveyed by Bloomberg News.

Usiminas, as the company is known, restarted two of three idled blast furnaces in July and August after demand from automakers and builders rebounded. It may produce at 85 percent capacity by year-end, Chief Executive Officer Marco Antonio Castello Branco said today on a conference call.

“Usiminas benefited from a significant production increase,” Chief Financial Officer Ronald Seckelmann said on the call.

Usiminas fell 0.4 percent to 52 reais in Sao Paulo trading. The stock has climbed 96 percent this year, more than the 76 percent gain for Brazil’s benchmark Bovespa index.

Profit “was substantially above expectations, due to a greater reduction in operational expenses,” Rodrigo Ferraz, a Rio de Janeiro-based analyst with Brascan Corretora, said in a note to clients today. Ferraz had forecast profit of 267 million reais. Operating costs fell 38 percent from the second quarter.

Rising Demand

Brazil, where prices are higher than in export markets, accounted for 67 percent of Usiminas’s quarterly sales of 1.7 million metric tons, the company said in its earnings release.

Domestic demand will likely grow as much as 20 percent next year, Castello Branco said.

The company still has one blast furnace, known as the No. 1 furnace, offline and will evaluate a restart by the end of the first half of next year, he said. Usiminas will also review plans for a new steel slabs project that was suspended earlier this year.

The company’s sales were helped after it got rid of price discounts in the third quarter as demand rebounded, Sergio Leite, Usiminas’s new businesses vice president, said on the call. The steelmaker had been offering distributors discounts of between 10 percent and 13 percent because of the global economic slowdown.

“We’re also negotiating with industrial customers on removing price discounts in the fourth quarter,” Leite said, without specifying the size of those discounts.

Still, a rally by the Brazilian currency against the U.S. dollar may depress domestic steel prices, Ferraz said. The real has gained 35 percent this year, the best performance among the 16 most-traded currencies tracked by Bloomberg.

Usiminas’s results are based on Brazilian accounting standards. Gerdau SA is Brazil’s largest steelmaker.

To contact the reporter on this story: Diana Kinch in Rio de Janeiro at dkinch1@bloomberg.net

Last Updated: October 22, 2009 17:04 EDT