Logistics Issues Hinder Mining Production in Q2, While Steelmakers Will Benefit From High EBITDA

The International Scenario Of High Costs And Logistics Issues Will Bring A Drop In The Production Of Brazilian Miners This Second Trimester, But The Steelmakers Will Ensure A Boost In Revenue And EBITDA.

The projections for the production of Brazilian miners are not favorable and there should be a drop in the company’s revenue, due to high production costs and logistics problems caused by restrictions in China. On the other hand, Brazilian steelmakers will be significantly benefited by the adjustment in steel prices and could grow significantly in revenue and EBITDA during this period in 2022.

Recovery Of The Production Of Brazilian Miners After A Weak First Trimester Will Take Time And The Projections For The Second Trimester Are Not Favorable

The international scenario of sanctions and closures in the product trading chain in China has caused a series of logistics problems for Brazilian miners, who now face negative projections for the second trimester of 2022.

After surviving a highly weak first trimester in terms of production and marketing of products, the miners now face a scenario of rising production costs and logistical problems in the sector.

This is because the commercial closure policy and lockdowns in China, which included city closures and mass testing rotations, caused a drop in demand and slower distribution. Thus, even the largest miners in Brazil, such as Vale, are facing production issues due to increasingly complicated logistics in the sector.

Consequently, Mover consensus expects an operating profit measured by EBITDA of US$6.48 billion for Vale, the second-largest iron ore producer in the world, representing a 1% drop compared to the first trimester.

Meanwhile, CSN Mining, a world reference in the mineral sector, is expected to continue the decline in profits and reduce 55% on the same basis, to R$1.09 billion in EBITDA, due to international logistics problems.

Additionally, Gabriela Joubert, chief analyst at Inter, commented that the production cost, known as Box C1, “is expected to increase in line with the rise in fuel and logistics costs, leading Vale and CSN Mining to report a sequential decline in EBITDA. In this case, the complication occurs in the arrival of ships.”

Steelmakers Do Not Suffer From Logistics Problems And Have High Production In The Second Trimester, With Strong Growth Projections For EBITDA

Contrary to what has been happening with miners in Brazil, the adjustments in steel prices announced throughout the year and sales in the domestic market should boost the quarterly balance of Brazilian steelmakers in this second period of the year 2022.

Thus, Mover consensus is projecting an EBITDA revenue of R$1.87 billion for Usiminas, a 19% increase from the first trimester, driven by the 80% adjustment in steel products, which is also being projected by the company itself.

Moreover, Gerdau is expected to take advantage of the high demand for long steel for infrastructure projects throughout Brazil and will achieve an increase in monetary revenue after the rise in production. Thus, EBITDA revenue for this company, one of the largest steelmakers in the country, should rise by about 13.3%, to R$6.6 billion during this second trimester of 2022.

Finally, CSN, which also operates in the national steel sector, will not be able to keep up with the favorable scenario, due to the decline in revenue in the mining sector, and the company’s total operating profit is expected to fall by 28.3% on a sequential basis, to R$3.38 billion.