Exports from Brazil’s largest steelmaker Gerdau should account for 40 percent of the company’s total operations by 2016 and 2017, credit rating agency Fitch said, while affirming the company’s long-term foreign and local currency ratings at BBB- and national scale at AAA(bra).
“Fitch expects Gerdau's exports to represent around 40 percent of the Brazilian operations during 2016 and 2017, an increase from historical levels closer to 20 percent,” it said, while commenting the challenges Brazil’s steel industry, and Gerdau, itself, have ahead amid an economic downturn.
“This will offset a portion of the volumes lost in the domestic market; however, it will negatively impact margins, as Gerdau's domestic Brazilian EBITDA margins are around 18 percent compared to the export market of 5-12 percent,” Fitch noted.
As for the local steel industry in general, the credit rating agency said steel producers should continue facing further headwinds in H2 and into “at least” mid-2017, “as industry fundamentals remain weak amid the country's economic recession.”
Fitch assumed steel sales volumes in Brazil should decline 12 percent in 2016, while average of price increases in the country in the same year should reach about 6 percent.