On Monday, JPMorgan issued a downgrade for Usiminas (USIM5:BZ) (OTC: OTC:USNZY) shares, shifting the steelmaker's stock rating from Overweight to Underweight. The firm also adjusted the price target significantly from R$11.00 to R$5.50. The decision came after a reassessment of the company’s production costs, market conditions, and iron ore price forecasts.
The downgrade was influenced by persistent high production costs, which have not decreased as JPMorgan initially anticipated. Despite predictions of cost reductions following the refurbishment of Blast Furnace #3, expenses remained elevated.
Factors such as the depreciating Brazilian currency, increased slab prices, and the combined production outputs of the Ipatinga and Cubatão facilities have contributed to the cost challenges faced by Usiminas. Consequently, JPMorgan has revised its projections to reflect steady costs rather than the expected reductions for the upcoming year.
Moreover, the global steel market is experiencing continued pressure due to high export volumes from China. JPMorgan does not foresee an improvement in the macroeconomic landscape in the near to medium term. Even with a modest uptick in domestic demand and the imposition of tariffs, it is unlikely that Usiminas will see its margins return to historical highs any time soon.
JPMorgan has also updated its iron ore price predictions, lowering them to $110 per ton in 2024, $100 per ton in 2025, and $95 per ton in 2026. These revised forecasts represent a decrease of approximately 3-5% from previous estimates. This downward revision reflects a less optimistic outlook for the commodity's pricing, further influencing the downgrade of Usiminas shares.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.