Shipments to outside customers from Latin American steelmakers will decline less steeply than at North American producers as the steel sector takes its lumps in 2009, according to a report issued Monday by Deutsche Bank analyst David Martin.

 

Overall, the steel sector is set to wither further as Deutsche recently lowered its 2009 Global GDP growth forecast to 0.2% from 1.2%. "In this environment, we expect steel demand to slow considerably, and steel mill shipments are likely to be extremely weak in 4Q08 and 1Q09. We are now expecting volume declines of approximately 15% in 2009 for our coverage companies," said Martin in the report.

 

The new steel forecasts now include price declines of 30-40% for benchmark iron ore from Australia and Brazil and decreases of 50-60% for coking coal in 2009. Prior forecasts were for iron ore to fall 5-15% and coal to decline 8-15% in 2009.

 

The four South American steelmakers covered by Deutsche--Brazil's CSN, Gerdau and Usiminas; and Ternium, which has operations in Argentina, Mexico and Guatemala--will see cumulative 2009 shipments sink by an estimated 11% compared with a 14% drop among Deutsche's five North American producers: AK Steel, US Steel, Gerdau Ameristeel, Nucor and ArcelorMittal.

 

The four South American producers' fourth-quarter 2008 shipments are forecast by Deutsche to be off 20% compared with the North Americans' 24%. Total 2008 shipments, however, are forecast to drop more among the South Americans, 5%, than among the North Americans at 3%.

 

CSN is forecast to see sales slip 23% in 2009 to an estimated $6.4 billion from an estimated $8.3 billion in 2008, before rebounding to an estimated $8.6 billion in 2010, according to Martin. "...slower-than-expected ramp-up of expansions for CSN's mining and steelmaking operations, and foreign exchange rates that don't meet expectations given that CSN is a Brazilian company but buys many of its raw materials in USDs," are among the company's chief concerns, he wrote.

 

Gerdau's sales are forecast to drop 25% in 2009 to an estimated $17.9billion from an estimated $23.9 billion in 2008, then rise back to an estimated $23.2 billion in 2010. Among the company's main obstacles are "...lower-than-expected shipments and realized prices, higher operating costs including for those steel scrap, growth plans that materialize slower-than-expected and lower realized synergies from recent acquisitions."

 

Sales at Usiminas are forecast to drop 29% to an estimated $6.6 billion in 2009 from an estimated $9.3 billion in 2008 then turn back up to an estimated $8.3 billion in 2010. Usiminas faces challenges including "...the timely and costly development of its investment program -- new mill investment recently announced in Brazil -- and M&A valuation and integration given that the company is acquisitive," according to Martin.

 

Ternium, which had its Venezuelan Sidor operations nationalized mid-year by the government there, is forecast by Deutsche to have estimated sales of $5.2 billion in 2009, down 36% from 2008 estimated sales of $8.2 billion. In addition to remaining questions about the value extracted for Sidor, Ternium also faces challenges from foreign exchange rates and slower economic growth than expected, according to Martin. –Platts