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Companhia Siderurgica Nacional (CSN) reported adjusted EBITDA of R$1.113B, some 15.4% short of the Street’s R$1.316B and was 24% below 4Q’s R$1.463B. The company mainly attributed weaker results to a combination of a 16.5% drop in iron ore volumes due to excessive rainfall in Brazil as well as 9.3% decline in iron ore prices, but said that steel results declined as well due to a less favorable product mix and higher costs.
Guidance was limited during the call, with CSN providing qualitative comments only. The company was bullish about the prospects in the Brazilian market, saying that costs are declining due to lower iron ore and coal prices and imports are likely to fall from 2m tonnes in 2011 to 1m tonnes this year which should increase domestic market share. The company said that for hot-rolled coils domestic prices are actually at a slight discount to imports, while the domestic price premium is “slightly positive” for cold-rolled and 5-7% for hot-dipped galvanized sheet. Management said that given the combination of these factors, it will try to raise prices by 5-10% by the end of June.
The positive commentary was contrary to what Klockner had said about the Brazilian market just a few days before during their conference call.
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The Brazilian Steel Market is gradually becoming more Independent from local manufacturers, as local OEMs got used to import High Quality and cheaper steel from South Korea, China and other different origins, at more competitive prices, which means that there is a permanent price war. On the other hand, Brazilian Economy is showing signs of weakeness and risk of inflation, caused by recent Government measures to protect its currency, which substantially reduced foreign investiments, Stock Market dropped 20% in a short period of time, also influenced by Greece and the Euro. Therefore, in spite of CSN showing better results than Usiminas, due to its stronger costs foundation, the Brazilian Steel Industry is no longer competitive, as it used to be, with lack of investments on Quality improvemnt and New Technologies, high costs of its own raw material, sold at Market price, and high salaries, pushed by blackout and lack of talents.