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Usiminas Heads for Biggest Rally Since 2000 as Sales Rise

Usinas Siderurgicas de Minas Gerais SA completed the steepest five-day gain in 12 years after Brazil’s biggest maker of steel for the auto industry posted a narrower-than-forecast second-quarter loss as sales rose.

Usiminas, as the Belo Horizonte-based company is known, climbed 5.3 percent to 7.38 reais in Sao Paulo. A 31 percent gain since July 24 is the biggest five-day jump since January 2000 and reduced a drop this year to 27 percent.

A net loss of 101.7 million reais ($49.8 million) compared with profit of 111.6 million reais a year ago, the company said in a statement late yesterday. The loss was less than half the 221.3 million-real average of seven analysts’ estimates compiled by Bloomberg. Usiminas said net sales climbed 6.6 percent to 3.23 billion reais in the period, while steel sales volume rose 19 percent to 1.89 million metric tons.

“Operating results should gradually improve throughout 2012 driven by higher steel volumes and slightly higher realized prices,” Flow CCTVM SA analysts led by Renato Antunes in Sao Paulo said in a note to customers.

Usiminas, which had losses in three of the past six quarters, is facing higher production costs at a time of contraction in the Brazilian car industry, its biggest client. Industrial production in Latin America’s biggest economy fell in May for a third straight month, as a weaker currency and government measures to boost sales of cars and other durable goods failed to spur demand.

Vehicle Slump

Production of vehicles in the first half of 2012 fell 9.4 percent to 1.55 million from a year ago, according to the Brazilian carmakers’ association known as Anfavea.

Usiminas is seeking to raise prices to industrial users by 5 percent to 7 percent in the third quarter, Sergio Leite, a Usiminas sales vice president, told analysts today on an earnings conference call. The Brazilian steelmaker boosted prices to distributors in July by a similar percentage, he said.

The company expects debt ratios to drop within covenants by the first-half of 2013, Chief Financial Officer Ronald Seckelmann said on the same call. The company probably had its debt peak at the end of the first-half, he said.

Usiminas jumped to the highest in more than a month yesterday after Goldman Sachs Group Inc. recommended buying the stock. The company is Goldman Sachs’s new top pick within Latin American steel stocks, analysts led by Marcelo Aguiar in Sao Paulo said in a note to customers after raising their recommendation from sell. Usiminas stands to profit from a recovery in Brazil’s flat steel demand and an operational “turnaround” after the entrance of the Techint Group in the controlling shareholder group, they said.

Outperform Peers

“We expect Usiminas to outperform peers and the broader market in the next 12 months as in our view operating turnaround will begin to materialize throughout the second half of 2012,” the analysts wrote. “Risk/reward has become compelling for Usiminas shares.”

Gerdau SA, based in Porto Alegre, Brazil, is Latin America’s largest steelmaker.

Download: Earnings

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