LATIN AMERICA LONG STEEL WRAP: Gerdau continues asset sales programme

Brazil-based steel producer Gerdau has made further moves this month in its asset divestment programme, announcing the sale of its Chilean operations to local family-owned groups Matco and Ingeniaría e Inversiones for $154 million.

Operations in the deal include long steel industrial units with combined capacities for 520,000 tpy of crude steel and 530,000 tpy of rolled steel, such as rebar, wire rod and merchant bar, according to an agreement published by the company on October 4.

Gerdau’s asset sales programme was intended to optimise assets, with the focus on profitability and a reduction of debt. It raised 1.30 billion Reais ($400.73 million) in 2016 alone.

“[Our] base case incorporates asset sales of around $400 million until mid-2018, which would lead to net debt/Ebitda [at Gerdau] of about 3.4x in 2017, declining to around 2.9x in 2018,” ratings agency Fitch said in a report on October 10.

Considering only those asset sales already announced during 2017, Fitch estimates further cash inflows of around $300 million for the Brazilian company, which would lead to net debt/Ebitda of about 3.0x in 2018.

Meanwhile, market sources told Metal Bulletin sister publication AMM on October 10 that Commercial Metals Co (CMC) could buy as many as five rebar mills from Gerdau Long Steel North America in a deal that could be finalised in the coming weeks or months.

Gerdau declined to remark on any potential asset sales, noting that the company does not comment on market rumours. CMC did not respond to a request for comment at the time of publication.

In addition, Fitch said in its October report that Gerdau’s leverage metrics had improved during 2016, but remain elevated for an investment-grade rating.

“The company has stated that its strategic plan is to reduce its net [debt] in the medium term through a combination of improving SG&A [selling, general and administrative] costs, reductions in capital expenditures, and asset sales,” Fitch added.

In mid-October, Gerdau issued $650 million in bonds, with the net proceeds from the offering to be used to refinance the steelmaker’s indebtedness and for general corporate purposes, it said.

Steel demand
Fitch believes that Brazilian long steel producers such as Gerdau will continue to face further market headwinds in the second half of 2017 and into the middle of 2018 at least, because industry fundamentals, which are mostly linked to homebuilding and infrastructure projects, remain weak amid the country’s severe economic recession.

Poor market conditions in the Brazilian construction sector have been preventing domestic mills from raising long steel prices in the past few months, but rumours of potential adjustments have been getting stronger.

“Steel prices have increased globally so, even amid weak demand levels, mills would have room to increase prices, blaming higher input costs and growing international prices,” a Brazil-based source said.

In early October, Metal Bulletin’s monthly price assessment for Brazilian rebar was unchanged on a monthly basis, at 3,250-3,410 Reais ($1,002-1,051) per tonne delivered.

Gerdau’s operations in the USA, meanwhile, could benefit from rising infrastructure spending and the implementation of policies to deal with unfair trade that could improve the price environment, according to Fitch.

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