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Companhia Siderurgica's Growth Dimmed by Headwinds

AKS SID MT TX

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We issued an updated research report on Companhia Siderurgica Nacional (SID - Free Report) or CSN on Sep 29, 2016. The company is one of the leading steel producers in Brazil.

Companhia Siderurgica Nacional, with $3.9 billion in market capitalization, has strong fundamentals, supporting growth. However, exposure to risks has restricted its growth momentum in the near term. Below we briefly discuss the company’s tailwinds and headwinds.

We believe that a diversified business structure, with exposure in steel, iron ore mining, logistics, cement and energy industries, have proven to be a boon for Companhia Siderurgica Nacional over time. The non-steel businesses of the company accounted for roughly 38% of second-quarter 2016 total revenue. Also, the company is making investments to further strengthen its non-steel operations.   

In addition, Companhia Siderurgica Nacional’s geographical presence as well as its wide array of products will support growth in the quarters ahead. In its vast product portfolio, hot and cold-rolled flat steel, galvanized sheets and tin plates for the packaging, automotive and construction industries are the most popular.

However, we believe the positive impacts of the above-mentioned tailwinds are offset by adverse impacts of headwinds faced by Companhia Siderurgica Nacional. Huge debt levels and higher costs and expenses, if left unchecked, will prove detrimental to the company’s profitability. Moreover, the company’s international operations are subject to risks from unfavorable foreign currency translations.

For 2016, world steel demand is projected to contract 0.8%, while that in Brazil is likely to decline 14% year over year. Such contraction might adversely impact Companhia Siderurgica Nacional’s businesses.

We believe continued weakness in these parameters might be unfavorable for the company, going forward.

In addition, Companhia Siderurgica Nacional faces stiff competition from other players in the steel industry including ArcelorMittal (MT - Free Report) , Ternium S.A. (TX - Free Report) and AK Steel Holding Corporation (AKS - Free Report) .

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