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Analysts say steel in Brazil doomed by global economy (GGB, MT, SID, USNZY)

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Banco Fator says the steel industry in Brazil and worldwide will have a slow recovery in 2012, affected by the crisis in Europe and deceleration of China's economy. For this reason, they do not recommend the sector in the short and medium term.

For the analysts, the major risks in Brazil are related to the low chances of an improvement in the domestic and global market.

"The companies' shares should remain very volatile and could also continue to be affected by rumors of corporate movements. We expect a gradual improvement in the companies´ return," they say.

The analysts do not believe that Brazilian steel companies will be able to expand their capacity much in the near term. With no significant pricing power on the horizon, they say, the focus must turn to reducing production costs.

Usiminas ( USNZY , quote ) and Gerdau ( GGB , quote ) should put a lot of effort on "developing their respective mineral resources," the analysts say, effectively calling on management to cut costs by cultivating iron ore reserves inside both companies.

As for CSN ( SID , quote ), the prognosis is a flat warning against expansion: "should not increase its capacity in flat steel."

As the analysts note, even global giants like ArcelorMittal ( MT , quote ), are reevaluating projects and their investment portfolios to try to lower their costs.

Banco Fator's primary recommendations are "hold" for GGB, SID and USNZY, with targets of $11.27, $10.73 and $7, respectively, on each stock.

This theoretically translates into upside of up to 44% for Gerdau and SID, but the analysts are not encouraging their clients to buy in at these levels.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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