Usinas Siderurgicas de Minas Gerais SA sank the most in two months after UBS AG recommended selling the stock, citing a decline in iron-ore prices that could erode the most profitable part of the company’s business.
Preferred shares of Usiminas, as the company is also known, declined 6.1 percent to 11.36 reais at the close of trading in Sao Paulo, the biggest drop since Aug 20. The Ibovespa equity benchmark retreated 1.1 percent.
While the Belo Horizonte, Brazil-based company is the country’s second-biggest steelmaker by output, 95 percent of its earnings before interest and taxes this year were derived from iron-ore mining, according to UBS. Analysts including Andreas Bokkenheuser and Rafael Cintra started coverage of the company with a sell recommendation, citing a projected decline in prices for the raw material.
“We are cautious on Usiminas in view of our bearish iron-ore outlook, as mining currently accounts for the majority of the company earnings,” the analysts wrote in a note to clients dated yesterday.
The UBS analysts project earnings before interest and taxes of 1.02 billion reais ($474 million) for Usiminas next year. That compares with an average estimate of 1.1 billion reais among 10 analysts surveyed by Bloomberg. UBS also estimates that the average price for iron ore will fall 14 percent to $106 per ton in 2014 from 2013, according to a note to clients dated Oct. 15.
Usiminas fell 11 percent this year, while competitors Gerdau SA declined 4.6 percent and Cia. Siderurgica Nacional SA lost 2.4 percent.