Despite decrease in shipments, Gerdau's net sales grew in Q4

Brazil-based steelmaker Gerdau S.A. has announced its financial results for the fourth quarter of 2021, noting that its production of crude steel declined 4 percent from the previous quarter and 3 percent from the fourth quarter of 2020. Despite that quarterly decline, the company produced 9 percent more steel in 2021 than in 2020. Its steel shipments also increased 11 percent in 2021 from 2020, however, its fourth-quarter 2021 shipments declined 2 percent from the same period in 2021 and 3 percent from the previous quarter in 2021.

Despite the decrease in shipments, the company’s net sales increased 58 percent in Q4 2021 from Q4 2020 and 79 percent year over year. Gerdau attributes the increase to the global growth in commodities through 2021 and the positive impact from the translation of net sales from its operations in North America influenced by the weaker Brazilian real. Compared with the third quarter of 2021, net sales were relatively stable, which offset the slight decrease in consolidated steel shipments.

Gerdau says its production capacity utilization rate of 74 percent reflects the seasonally weaker quarter, especially in Brazil, as well as the scheduled maintenance typically carried out at some of its units during that time.

The company says the main factors driving the increase in the cost of goods it sold in Q4 of 2021 compared with Q4 2020 were the higher costs for the primary raw materials it uses, including scrap and iron ore, which increased 55 percent and 82 percent, respectively, year over year for the quarter. In relation to Q3 of 2021, the company says the increase in the cost of goods sold is explained mainly by the 28 percent increase in coal costs.

In the conference call to review its 2021 quarterly and annual earnings, Rafael Japur, chief financial officer at Gerdau, said  scrap spreads in North America are at “historically high levels.” He added, “Therefore, our outlook for the next coming quarters at least in 2022, is that these levels will be maintained, driven by the strength in demand. In March, U.S. scrap could increase to be around $30 to $50, which will help sustain the prices in North America. Therefore, our outlook going forward is that this spread at high levels should be maintained.”

Gerdau has noted that scrap will play an important role in meeting its climate change strategy that sets a target to reduce its emissions of CO2 to 0.83 metric tons of CO2 per metric ton of steel produced by 2031. The company, which has several scrap-fed electric arc furnace steel mills in North America, has noted a recycled content figure of more than 70 percent.

The company’s consolidated gross profit and gross margin increased in the quarter compared with Q4 of 2020, which Gerdau says was driven mainly by the strong construction industry in the U.S. and Brazilian markets and by sales to the industrial sector in Brazil.

Gerdau’s consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) increased 61 percent from Q4 2020 to Q4 2021 and 208 percent year over year to $1,011.5 million for the quarter and $4,588.8 million for the year. Its adjusted EBITDA increased 96 percent from Q4 2020 to Q4 2021 and 202 percent year over year to $1,159.4 million and $4,499.9 million, respectively. The company says its adjusted EBITDA and adjusted EBITDA margin for its consolidated operations in Q4 2021 set all-time highs for a fourth quarter, reflecting strong demand for steel in all countries where it operates and its capacity to seize the opportunities arising in the market.