Usinas Siderurgicas de Minas Gerais SA and Cia. Siderurgica Nacional SA rallied as Goldman Sachs Group Inc. said the chance of steel price increases in the first quarter of 2014 has risen.
Preferred shares of Usiminas gained 7.2 percent to 13.38 reais at 2:43 p.m. in Sao Paulo, the highest level on a closing basis since March 2012. The steelmaker was the best performer on the Ibovespa, which added 1.7 percent. CSN, as Cia. Siderurgica is known, rose 4.8 percent to 12.62 reais, the steepest advance since Nov. 1.
Brazilian steelmakers will probably raise prices at the beginning of next year as a decline in the currency reduced the domestic premium over overseas products, Marcelo Aguiar, Humberto Meireles and Diogo Miura, analysts at Goldman Sachs, wrote in a note to clients today. The real’s decline should also discourage imports, helping to create a “supportive scenario” for a domestic price increase, they wrote.
Belo Horizonte, Minas Gerais-based Usiminas gets about 80 percent of its revenue from sales in Brazil, according to the company’s third-quarter earnings statement. “Usiminas has the higher operating leverage to domestic prices,” the Goldman Sachs analysts wrote.
The increase in prices will probably “boost steelmakers’ results in the first quarter of 2014,” according to the Goldman Sachs research note.
The real has weakened 6.3 percent in the fourth quarter, the worst performance among 16 major currencies tracked by Bloomberg, on concern Brazil’s fiscal deterioration will lead to a reduced credit rating and speculation the Federal Reserve will curtail stimulus.