(Adds comments from Leite interview in paragraphs 2-5)
By Guillermo Parra-Bernal and Alberto Alerigi Jr
SAO PAULO, April 20 Executives at Usinas
Siderúrgicas de Minas Gerais SA said on Thursday that Brazil
domestic flat steel prices remain unsustainably high, which
risks luring cheap imports and worsening a local glut of some
Local prices are now between 20 percent to 30 percent above
international prices, which is "unsustainable," Chief Executive
Officer Sérgio Leite in an interview to discuss Usiminas's
quarterly results. While international prices could rise, local
prices may climb 3 percent to 5 percent this quarter, he added.
Wider so-called price premiums and a stronger currency have
hampered profits at Brazilian steelmakers in the past. Five
years ago, a similar situation led to an excess of steel imports
into Brazil, triggering a crisis that mills are still struggling
"Equilibrium premiums are 5 percent to 10 percent, making it
hard for anyone to operate at these levels," Leite said.
Higher domestic prices helped Brazil's No. 1 listed flat
steelmaker reverse a net loss last quarter. While sales volumes
rose despite Brazil's ongoing recession, analysts said volatile
price trends could put the brakes on Usiminas's recovery.
Net income came in at 108 million reais ($34 million) last
quarter, reversing a loss of 195 million reais the prior three
months. The result beat Thomson Reuters' average consensus
estimate of 26 million reais.
"A reduction in domestic prices could be triggered by a drop
in international steel prices and further currency appreciation,
potentially reversing the trend of improving results," said
Marcos Assumpção, an analyst with Itaú BBA.
Domestic sales, which are generally priced higher than
exports, accounted for 90 percent of Usiminas's revenue last
Shares rallied as much as 5 percent on the
stronger results, which suggested an inflection point for a
company wrestling with the recession and a dispute between top
shareholders Nippon Steel & Sumitomo Metal Corp and
Still, earnings before interest, tax, depreciation and
amortization fell 10 percent to 528 million reais from the prior
three months. Analysts estimated EBITDA, as the gauge is known,
of 326 million reais.
Leite pledged to keep reining in costs and optimize the use
of working capital, which rose in the wake of higher inventory
and a halt of operations at the Cubatão mill.
Usiminas will invest around 300 million reais this year and
control the use of working capital even as inventory stays high.
Declining Brazilian interest rates are helping lower
debt-servicing costs for Usiminas, he added.
($1 = 3.1505 reais)
(Editing by Chizu Nomiyama and Meredith Mazzilli)