Digitalization And Trade Defenses Will Lower Steel Costs

Key Takeaways

• Efficiency and modernization investments, plus expanded value-added products, are expected to boost profit margins and long-term earnings growth.
  
• Favorable trade policies and domestic demand trends should strengthen Usiminas' pricing power, sales outlook, and competitive positioning in local and regional markets.
  
• Rising import competition, economic headwinds, legacy technology, and global overcapacity put Usiminas at risk of sustained margin and revenue pressure in core and export markets.

Catalysts

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

• Continued investment in advanced cost reduction and operational efficiency measures-including automation, digitalization, and internal energy production-should further lower Usiminas' unit costs and improve net profit margins over the next several years, especially as recent capex on the PCI and coke plant modernization comes online.
  
• The expected completion and adoption of effective antidumping measures and/or additional trade defenses in Brazil could significantly reduce unfair steel imports, restoring price discipline and improving Usiminas' domestic sales volume, average selling prices, and EBITDA margins.
  
• Sustained growth in domestic infrastructure investment and automotive production in Brazil, backed by long-term public support and tax incentives, positions Usiminas-given its leadership in flat steel supply-to capture higher revenues and maintain premium pricing on value-added steel products.
  
• As global supply chain nearshoring accelerates, regional manufacturers' focus on sourcing locally-for resilience and ESG compliance-gives Usiminas a competitive edge in the Brazilian and broader Latin American steel markets, potentially supporting higher domestic revenue stability and improved capacity utilization.
  
• Ongoing and planned investments in higher-quality, value-added steel products (e.g., for renewables, automotive) align with rising demand for specialized steels tied to renewable energy buildout and energy transition projects, supporting higher-margin sales and long-term EBITDA growth.

Usinas Siderúrgicas de Minas Gerais Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Usinas Siderúrgicas de Minas Gerais's revenue will grow by 1.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 2.2% in 3 years time.
• Analysts expect earnings to reach R$614.7 million (and earnings per share of R$0.44) by about September 2028, up from R$376.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$850.7 million in earnings, and the most bearish expecting R$264.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.5x on those 2028 earnings, up from 14.1x today. This future PE is greater than the current PE for the BR Metals and Mining industry at 10.2x.
• 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 23.49%, as per the Simply Wall St company report.

Usinas Siderúrgicas de Minas Gerais Future Earnings Per Share Growth

Risks

• Persistent surge in steel imports-particularly from China, often at prices below local production cost due to loopholes and ineffective quota-tariff systems-continues to place severe downward pressure on domestic prices and volumes, risking further erosion of Usiminas' revenues and net margins.
  
• The company's financial performance remains highly susceptible to domestic economic cycles and broader industrial slowdown trends in Brazil, as reflected in weak growth across key sectors such as automotive and construction, which could periodically depress demand and cause cyclical downturns in earnings.
  
• Recent and potential future increases in trade barriers and tariffs imposed by major export markets (e.g., the US) risk disrupting the export-oriented segment of Usiminas' business and impacting key customers, creating additional volatility in revenue and earnings from international operations.
  
• Ongoing reliance on legacy blast furnace technology, despite new investments in modernization and efficiency, exposes Usiminas to cost disadvantages relative to global competitors adopting more efficient and decarbonized electric arc furnace processes, potentially leading to structural pressure on net margins over the long term.
  
• Sustained global steel overcapacity-driven by China's continued export surplus and delayed production reforms-intensifies international competition, fosters price volatility, and heightens the risk of prolonged lower selling prices, negatively impacting Usiminas' top line and profitability in both domestic and export markets.

Valuation

• The analysts have a consensus price target of R$5.429 for Usinas Siderúrgicas de Minas Gerais based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$8.7, and the most bearish reporting a price target of just R$4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$28.2 billion, earnings will come to R$614.7 million, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 23.5%.
• Given the current share price of R$4.3, the analyst price target of R$5.43 is 20.8% 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.