Usiminas Profit Plunges 80% on Steel Output Fall, Costs

Usinas Siderurgicas de Minas Gerais SA, the second-largest Brazilian steelmaker by output, said third-quarter profit plunged 80 percent as production declined.

Net income dropped to 103 million reais ($59.1 million) from 514 million reais a year ago, Usiminas, as the Belo Horizonte, Brazil-based company is known, said today in a regulatory filing. The company was expected to post profit excluding some items of 93.3 million reais, according to the average of six analysts in a Bloomberg survey.

Crude steel output declined 21 percent to 1.55 million metric tons from last year, the fourth consecutive quarterly drop. Net sales fell 7.4 percent to 3 billion reais, while the cost of goods sold rose 8.7 percent, the company said.

“In line with the slowdown in the economic activity, flat steel consumption in the third quarter remained negatively affected by efforts to reduce inventories in the entire production chain and the continuing increase of indirect imports,” Usiminas said.

The company’s preferred shares dropped 38 percent this year through yesterday, more than double the 15 percent decline in Brazil’s benchmark Bovespa index, as higher raw-material costs and lower demand harmed steelmakers’ profit margins. Industrial production in Latin America’s biggest economy sank 2 percent in September, the biggest decline since April, and vehicle output fell 9.5 percent in October.

‘Under Pressure’

“Usiminas’s profitability remained under pressure due to high raw materials prices and lower sales volumes in the quarter,” Jonathan Brandt, an equity analyst at HSBC Holdings Plc in New York, said in note to customers today.

Usiminas expects Brazil’s consumption of flat steel, used in autos and appliances, to decline 6 percent this year to 12.9 million metric tons, as the industry sees lower industrial activity and inventory reductions, it said in today’s filing. Consumption may grow 6 percent to 13.7 million tons in 2012, the company said.

Usiminas posted a financial loss of 158.3 million reais after a weaker Brazilian real, which slumped 17 percent in the third quarter to become the worst performer among the world’s 16-most traded currencies, boosted dollar-denominated debt. The company said today it hedged $738 million of its foreign currency debt on Aug. 1 to reduce the price fluctuations.

Expansion Suspended

ArcelorMittal, the world’s largest steelmaker, said Nov. 1 that it will suspend a $1.2 billion expansion plan for its Monlevade plant in Brazil amid a global slowdown and lower-than-forecasted steel demand in the Latin American country.

Cia. Siderurgica Nacional SA, the third-largest Brazilian steelmaker by output, said Oct. 27 that revenues for the steel business fell 7.7 percent in the third quarter while profit rose 52 percent boosted by record iron-ore sales.

Usiminas gained 1.5 percent to 12.03 reais in Sao Paulo.

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