Usiminas Sinks Most in Month as BTG Pactual Cuts to `Neutral' From `Buy'

Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-biggest steelmaker, sank the most in a month after Banco BTG Pactual stripped the stock of its “buy” rating, and the Trade Ministry said it may lower duties on some imported steel plates.

Usiminas, as the Belo Horizonte-based company is known, dropped 3.3 percent to 50.19 reais at 11:39 a.m. New York time. Earlier it fell 4.4 percent, the biggest drop since June 29.

The stock was lowered to “neutral” at BTG Pactual, citing “worsening earnings momentum” in the second half of the year. Brazil has lowered for six months import duties on some steel plates used to produce capital goods for the petrochemicals industry because of supply shortages, the Trade Ministry said.

“While results were in line with estimates, the outlook for the coming quarters appears challenging, with declining volumes in the domestic market and higher costs,” wrote BTG analysts Edmo Chagas and Antonio Heluany in a note to clients.

International steel prices will likely rise in the second half of the year, while Brazil steel prices are “less favorable” and Usiminas will be hurt most by this given its dependence on sales within the country, the analysts wrote.

‘More Attractive’ Producers

The analysts say investors should switch from Usiminas to other “more attractive” metals producers, including Vale SA, the world’s biggest iron ore producer, Gerdau SA, Latin America’s biggest steelmaker, or Cia. Siderurgica Nacional SA, Brazil’s third-biggest steelmaker.

Vale gained 0.8 percent to 42.87 reais. Gerdau slipped 1.5 percent to 25.50 reais. CSN fell 1.1 percent to 29.33 reais.

Brazil reduced to 2 percent from 12 percent the import tax it charges on two specific steel plates, the ministry said in a statement on its website. Brazil also set a limit of up to 800 tons and 250 tons for the importation of each plate, the ministry said.

Brazilian manufacturers don’t currently produce the plates, though they have the spare capacity to do so, the ministry said.

Latin America’s biggest economy has been facing bottlenecks after growing 9 percent on an annual basis in the first quarter, driven by consumer demand and investment. The use of installed capacity fell to 82.3 percent in May, from a 19-month high of 82.8 percent in April.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net.

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