One of the leading steel producing companies in the world, Gerdau S.A. (GGB) has been recently upgraded by us from Underperform to a Neutral recommendation.
Rising global demand along with increase in Gerdau’s domestic demand for steel is a boon for the Brazilian steel maker. Needs for better farming techniques and infrastructure are working as steel demand stimulator across the world.
According to the World Steel Association, the steel industry is likely to see steel consumption grow by 3.6% in 2012 and 4.5% in 2013. Steel demand in China and India remains strong. However, weakness arising from the Eurozone debt crisis has stalled growth, and hence, demand for steel is weak in the region.
In the second quarter 2012, Gerdau reported a 9% improvement in net results and also registered an 11% year-over-year growth in revenues. Improved sales in the domestic market, chiefly due to a rise in construction demand, were partially offset by weaker exports caused by instability in the European economy. Businesses in North America and Latin America also flourished along with strengths witnessed in Special Steel.
However, weakness arising from escalating raw material costs and currency translation has its impact on the growth momentum for Gerdau. To counter the negative effects of high raw material prices, the company is making every effort to improve its manufacturing techniques and attain self-sufficiency in raw materials.
Other major players in the industry include Companhia Siderurgica Nacional (SID) and Arcelor Mittal (MT) that strongly compete with Gerdau.
The current Zacks Consensus Estimate for the third quarter is 16 cents, representing a year- over-year decline of 38.0%. Estimates for 2012 and 2013 are 56 cents and 81 cents, respectively. These represent annual decline of 21.94% in 2012 and growth of 44.13% in 2013.
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