Devaluation of BRL, MXN to benefit local iron ore and steel producers

Tuesday, 29 September 2015 00:54:23 (GMT+3)   |   Sao Paulo
       

As the US dollar (USD) gets stronger when compared to both the Brazilian real (BRL) and the Mexican peso (MXN), analysts expect local iron ore and steel producers, such as Vale, Minera Autlan, Industrias CH and Simec, to benefit from the strengthening of the North American currency.

According to media reports, the MXN lost about 11 percent of its value when compared to the USD, however, some Mexican-listed companies, such as steel producers Industrias CH and Simec, are “free” from the effects of the devolution of the country’s currency.

According to analysts, such devaluation is said to “have a different accounting impact among Mexico’s stock-exchange main companies, depending on the composition of their revenues, assets in foreign as well as in local currencies and in USD.”

According to Monex, ICH, Simec and iron ore producer, Minera Autlán, are among some of the country’s companies that will benefit from the devaluation of the MXN over the USD. According to Monex, these companies have a higher percentage of their revenues in USD. They also benefit from having lower financial leverage levels.

Monex said ICH and Simec have 100 percent of their revenues in USD, while Minera Autlan is reportedly to have about 5 percent of its revenue in USD.

Brazil miner and iron ore producer Vale is also expected to benefit at some extent from the devaluation of the BRL, which declined 33.2 percent since the start of the year when compared to the USD.

Quoting a Sao Paulo-based analyst, Bloomberg noted “those companies—including Vale—are the most resilient at this moment,” as “they should continue gaining as the BRL depreciates.”

Vale also benefits from having most of the cost of the goods sold (COGS) in BRL, instead of in USD. In Q2, 51 percent of Vale’s COGS was in BRL, while 34 percent in USD.

By the other hand, about 75 percent of Vale’s investments—Capex—are in BRL. Other worrying point to Vale is that 95 percent of Vale’s debt is denominated in USD, as of Q2.


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