Take all of the issues with the Brazilian steel industry, weakening
domestic demand and increasing import competition in particular, and add
on weakness in the iron ore market and a lot of leverage and you have
the challenges facing Companhia Siderurgica Nacional (or CSN) (NYSE:SID)
today. CSN does have some definite positives working in its favor,
including strong share in the higher-value Brazilian galvanized steel
market, high domestic prices, and low-cost iron operations, but plunging
iron ore prices and a weak domestic steel market have largely
overshadowed them.
As operating companies, I like Ternium (NYSE:TX) and Gerdau (NYSE:GGB)
better than CSN. Both are more geographically diversified and have yet
to reap the full benefits from upgrading their production portfolio and
integrating their inputs. That said, recoveries often benefit stressed
companies more and CSN could outperform if Brazil's recovery comes
sooner (and/or stronger) than expected or iron ore prices recover.
Read more here:
CSN's Highly Leveraged To Recoveries In Brazil's Economy And Global Iron Prices
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