Usiminas Says 'Excessive' Iron-Ore Surge Limited Quarterly Profit Increase

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Jul 2010

Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-biggest steelmaker, said second-quarter net income was little changed after an “excessive” increase in iron-ore costs eroded gains from soaring sales.
Net income rose to 338.8 million reais ($192 million) from 332.8 million reais in the year-earlier period, Usiminas, as the Belo Horizonte-based company is known, said today in a statement on the Brazilian securities regulator’s website. Earnings per share dropped to 69 centavos from 75 centavos. Net sales climbed 49 percent to 3.59 billion reais.
“The increase in sales volumes didn’t compensate for higher iron-ore costs,” Max Bueno, an analyst at Sao Paulo- based Spinelli Corretora, said in a telephone interview today. He rates the stock a “hold.”
Surging iron-ore sold in the spot market prompted producers including Vale SA to double prices and replace a 40-year system of annual contracts with quarterly accords earlier this year. The spot price of iron ore in China more than doubled from the prior year to average $159 a metric ton in the second quarter, according to Steel Business Briefing data.
“We face bigger pressure on costs, reflecting the excessive increase in one of the most important raw materials in the steelmaking process -- iron ore,” Usiminas said.
Usimina’s domestic sales increased 54 percent to 3.15 billion reais from the year-earlier period, boosted by Brazil’s economic growth. Latin America’s biggest economy will expand 7.2 percent this year, according to the median forecast in a central bank survey of 100 economists published this week.
Rising Sales
International sales climbed 20 percent to 437 million reais, Usiminas said.
High inventories may make it more difficult for Brazilian steelmakers to pass rising costs through to customers in the third quarter, Felipe Reis, a Sao Paulo-based equity analyst for Banco Santander SA, said in a telephone interview before the report. Reis rates the stock a “buy.”
Usiminas said July 20 it plans to raise steel prices after raw-material costs increased. Prices will increase by 3.5 percent to 6 percent as of Aug. 1, the company said.
Usiminas rose 1.4 percent to 53.34 reais in Sao Paulo trading at 11:20 a.m. New York time. It’s up 10 percent this year, compared with a 1.9 percent drop for the benchmark Bovespa index.
Usiminas agreed to sell a stake in its mining and railroad businesses to Sumitomo Corp. for $1.93 billion in June.
The earnings results were based on International Financial Reporting Standards. The company didn’t report earnings per share.
Gerdau SA is Brazil’s largest steelmaker.

Source: Bloomberg