Brazil is the ninth largest steel manufacturer in the world. The COVID-19 pandemic severely impacted the steel industry in the first half of 2020, but the Brazilian steel industry has been making a strong comeback as the major economies have begun reopening their industries. In fact, the rapidly recovering steel industry is driving the Brazilian economy. The country’s GDP is expected to revive at a rate of 3.5% in 2021.
Brazilian flat and long steel producer Gerdeau expects the country’s steel demand to rise 6%-8% year-over-year in 2021. Also, the declining Brazilian currency has been favorable for its steel industry, with spot steel prices exceeding actual contract prices in December last year.
Consequently, we believe Brazilian stocks Vale S.A. (VALE) and Companhia Siderurgica Nacional S.A. (SID) will benefit from this rise in demand. These stocks have the strength to stay ahead of their peers going forward based on their diverse market reach.
Vale S.A. (VALE)
Headquartered in Rio de Janeiro, Brazil, VALE is a global producer of iron ore and iron ore pellets, which are key raw materials for steelmaking. It also is a producer of nickel. The company also produces copper, metallurgical and thermal coal, potash, phosphates and other fertilizer nutrients, manganese ore, ferroalloys, platinum group metals, gold, silver and cobalt. VALE operates primarily through three segments — Ferrous minerals, Coal and Base metals.
VALE’s net operating revenue for the fourth quarter, ended December 31, 2020 was $14.7 billion, representing an improvement of 48.2% year-over-year. Its net operating revenue from Asia increased 62.6% year-over-year to $11.11 billion. Its net operating revenue from the ferrous minerals and base metals segment have increased 52.2% year-over-year and 44.1% year-over-year, respectively. And its net income was $739 million compared to a net loss of $1.56 billion for the fourth quarter of 2019.
A consensus EPS estimate of $0.90 for the current quarter, ending March 31, 2021 represents a 1185.7% improvement year-over-year. The consensus revenue estimate of $12.49 billion for the same quarter represents a 78.4% rise from the same period last year.
The company announced this month R$ 4.26 per share as its dividend per share, payable on March 15. Of this amount, R$3.43 per share will be paid as dividends and R$0.84 per share will be paid as interest on equity. In February, VALE notified its bondholders of the redemption of all its 3.750% bonds, due January 10th, 2023. The redemption of which will be made on March 29. The stock has gained 113.4% over the past year and closed yesterday’s trading session at $17.01.
VALE’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The stock also has an A grade for Quality and a B grade for Value, Growth and Momentum. In total, we rate VALE on eight different levels. Beyond what we stated above we also have given Vale grades for Sentiment and Stability. Click here to check all of VALE’s ratings.
VALE is ranked #5 of 42 stocks in the Industrial - Metals Industry.
Companhia Siderurgica Nacional S.A. (SID)
Based in Sao Paulo, Brazil SID operates as an integrated steel producer in Brazil and Latin America. The company operates through five segments — steel, mining, cement, logistics, and energy. SID produces primarily carbon steel and various steel products for the distribution, packaging, automotive, home appliance, and construction industries.
SID’s net revenue for the fourth quarter ended December 31, 2020 was R$9.79 billion, up more than 50% year-over-year. Steel sales came in at 1,229 thousand tons, up 10% year-over-year. Its gross profit has increased 100.4% to R$4.20 billion. And its adjusted EBITDA was t R$4.74 billion, up nearly 200% year-over-year.
A consensus EPS estimate of $0.11 for the quarter ending March 31, 2021 represents a 161.1% improvement year-over-year. Moreover, SID has surpassed the consensus EPS estimates in three of the trailing quarters.
The stock has gained 240.9% over the past year and closed yesterday’s trading session at $6.00.
SID's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock also has a B grade for Quality, Growth, Sentiment and Momentum. We have also graded SID for Value and Stability. Click here to check all SID's ratings.
SID is ranked #9 of 36 stocks in the A-rated Steel Industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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VALE shares rose $0.33 (+1.94%) in after-hours trading Wednesday. Year-to-date, VALE has gained 6.07%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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