Global Trade Barriers And Imports Will Undermine Steel Fundamentals

Key Takeaways

• Global trade barriers, evolving industry trends, and adverse policy shifts threaten Gerdau's core markets, weakening revenue prospects and operational flexibility.
  
• Rising competition, demographic stagnation, and overcapacity risk eroding profitability, steel demand, and long-term shareholder value.
  
• Strong North American demand, sustainability leadership, strategic project execution, and disciplined capital management position Gerdau for enhanced profitability, margin expansion, and long-term earnings growth.

Catalysts

Operates as a steel producer company.

• Gerdau's long-term revenue growth is under threat due to rising global trade protectionism, surging steel imports (especially into Brazil), and the sustained lack of effective trade defense mechanisms, which are expected to force the company into lower-return or defensive postures in its home market and restrict its export channels. These headwinds create an environment where volume expansion and price realization are likely to be structurally weaker for years to come.
  
• The accelerated global push toward decarbonization and increasing adoption of alternative, low-carbon construction materials could structurally undermine demand for conventional steel products, exposing Gerdau to the risk of declining revenue from its core product lines and the burden of expensive compliance investments that may erode long-term profitability.
  
• Gerdau's earnings power and net margins will likely be permanently impaired by the company's decision to scale back growth CapEx and restrict investment in Brazil, driven by poor domestic returns and adverse government policy. This defensive stance caps future cost and productivity gains and limits the company's ability to offset downturns, locking in a lower base of operating leverage.
  
• While North America is currently a bright spot, Gerdau remains dangerously exposed to heightened competition from low-cost Asian producers and mounting risk of U.S. trade policy changes, which could reverse the recent market protection and swiftly compress steel spreads, market share, and EBITDA margins in its largest earnings contributor.
  
• Demographic stagnation and slower urbanization in critical South American and North American markets threaten a sustained reduction in steel consumption growth, which, coupled with ongoing overcapacity, could push Gerdau's capacity utilization and free cash flow generation structurally lower over the coming decade, dampening both top-line expansion and shareholder returns.

Gerdau Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Gerdau compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Gerdau's revenue will grow by 3.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.7% today to 6.0% in 3 years time.
• The bearish analysts expect earnings to reach R$4.5 billion (and earnings per share of R$2.77) by about August 2028, up from R$3.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.3x on those 2028 earnings, up from 10.0x today. This future PE is greater than the current PE for the US Metals and Mining industry at 9.8x.
• Analysts expect the number of shares outstanding to decline by 5.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.52%, as per the Simply Wall St company report.

Gerdau Future Earnings Per Share Growth

Risks

• Gerdau's strong and diversified presence in North America, where market conditions remain favorable due to resilient nonresidential construction demand, steel import tariffs, and ongoing reindustrialization trends, is likely to drive higher capacity utilization and support steady or increasing EBITDA and revenues.
  
• The company's substantial progress and near-completion of strategic projects such as the Miguel Burnier sustainable mining project and the hot-rolled coil mill are expected to generate significant incremental EBITDA-estimated at over R$1.1 billion annually from the mining project alone-boosting profitability and net income from 2026 and especially into 2027.
  
• Gerdau's operational model, which emphasizes sustainability and maintains an average GHG emissions intensity less than half the global steel sector (0.85 tCO2/tonne vs. global average), aligns well with global trends toward green steel and low-carbon supply chains, positioning the company to benefit from premium pricing and enhanced margins over the long term.
  
• Ongoing commitment to capital discipline, shareholder returns through high dividend payout ratios and substantial share buybacks (with 90% payout and 2.2% of shares repurchased so far in 2025), coupled with low leverage (0.85x net debt/EBITDA) and robust operational cash flows, underpins financial resilience and could support share price appreciation via multiple expansion.
  
• Management's focus on cost competitiveness, with targeted reductions and increased fixed cost dilution through normalization of operations in Brazil, as well as continued vertical integration, value-added product development, and digital transformation, is expected to drive margins higher and sustain earnings growth into the medium and long term.

Valuation

• The assumed bearish price target for Gerdau is R$17.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Gerdau's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$27.5, and the most bearish reporting a price target of just R$17.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be R$75.6 billion, earnings will come to R$4.5 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 20.5%.
  
• Given the current share price of R$16.39, the bearish analyst price target of R$17.0 is 3.6% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.