Latin America And Green Steel Will Drive Global Transformation

Key Takeaways

• Aggressive cost-cutting, operational modernization, and coke self-sufficiency could make Usiminas a low-cost industry leader with structurally higher margins and stronger cash flow.
  
• Strategic positioning for global infrastructure growth, bold sustainability investments, and consolidation opportunities should expand market share, support premium pricing, and drive sustained revenue and earnings outperformance.
  
• Structural overcapacity, cheap imports, high capex needs, stagnant domestic demand, and tougher environmental standards threaten long-term profitability and growth prospects.

Catalysts

Processes, manufactures, and markets flat steel products in Brazil and internationally.

• While analyst consensus anticipates margin improvement from ongoing cost reductions and operational efficiency initiatives, progress in automation, digitalization of maintenance, energy efficiency (including solar co-generation), and systemic process transformation is likely to drive a far steeper drop in COGS and a structurally higher net margin than expected.
  
• Analysts broadly agree that self-sufficiency in coke production via the new Coke Plant will yield significant cost savings, but this transformation could enable Usiminas to become one of the lowest-cost steel producers in Latin America, supporting industry-leading margins, freeing up cash flow for reinvestment or distribution, and potentially allowing further upside from exporting surplus coke or processed fuels.
  
• Usinas Siderúrgicas de Minas Gerais is strategically positioned to benefit from a multi-decade global infrastructure boom, particularly in Latin America and developing regions, driving structural demand growth for its flat steel and high-value-added products and providing long-term tailwinds for revenue expansion.
  
• Industry-wide climate transition and green steel initiatives are accelerating, and Usiminas's substantial investments in environmental upgrades and efficient plant modernization could soon command premium pricing, secure higher-value contracts, and unlock preferential access to export markets, boosting both revenue and margin sustainability.
  
• As a result of ongoing industry consolidation and decarbonization imperatives, Usiminas is likely to gain market share as weaker peers retrench, while its strong balance sheet and prudent capital allocation position it to acquire distressed assets or expand into downstream recycling and electric arc furnace operations, driving outperformance in earnings growth above consensus expectations.

Usinas Siderúrgicas de Minas Gerais Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Usinas Siderúrgicas de Minas Gerais compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Usinas Siderúrgicas de Minas Gerais's revenue will grow by 3.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.4% today to 3.2% in 3 years time.
• The bullish analysts expect earnings to reach R$948.6 million (and earnings per share of R$0.73) by about August 2028, up from R$376.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, up from 14.5x today. This future PE is greater than the current PE for the BR Metals and Mining industry at 9.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 23.15%, as per the Simply Wall St company report.

Usinas Siderúrgicas de Minas Gerais Future Earnings Per Share Growth

Risks

• The surge in low-cost steel imports, especially from China, has led to significant pricing pressures and market share loss for Usinas Siderúrgicas de Minas Gerais, which, combined with the ineffectiveness of Brazil's quota-tariff system and slow antidumping responses, is directly depressing revenue and operating margins.
  
• Structural overcapacity and aggressive competition in the global steel market, compounded by rising tariffs from key export markets such as the United States, threaten both export volumes and the profitability of the company's international sales activities.
  
• The heavy and ongoing requirement for capital expenditures, with maintenance CapEx alone at around R$1 billion and major modernization projects scheduled through 2029, will pressure free cash flow and could keep net margins and returns on invested capital restrained in a challenging demand environment.
  
• End-market demand in Brazil is showing signs of secular stagnation or decline, especially in construction and auto sectors due to high interest rates, slow urbanization, and heavy reliance on cyclical industries, risking lower long-term sales volumes and reduced topline growth.
  
• The global transition towards low-carbon materials and increasing adoption of advanced substitutes such as aluminum and composites, together with tightening environmental regulations that raise compliance costs, may diminish core steel demand and compress the company's profitability over the long term.

Valuation

• The assumed bullish price target for Usinas Siderúrgicas de Minas Gerais is R$9.16, which represents two standard deviations above the consensus price target of R$5.81. This valuation is based on what can be assumed as the expectations of Usinas Siderúrgicas de Minas Gerais's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$10.0, and the most bearish reporting a price target of just R$4.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be R$30.0 billion, earnings will come to R$948.6 million, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 23.1%.
  
• Given the current share price of R$4.44, the bullish analyst price target of R$9.16 is 51.5% higher.
  
• 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.