Gerdau hits slow patch on steel output

Brazil-based steelmaker Gerdau, which also has mills and scrap yards in North America, reports a slower level of steel output in this year’s third quarter compared with both the prior quarter and year on year.

In this year’s third quarter, Gerdau reports crude steel production of 2.8 million metric tons, down 9.0 percent from the prior quarter and 5.5 percent compared with the third quarter of 2022.

In same cases, the steelmaker blames “excess steel production in Asia, which resulted in an increase in exports to other markets and pressure on international prices.”

The company’s net sales figure fell by a more sizable 19.3 percent year on year, a circumstance Gerdau blames in part on further depreciation of the United States dollar against the Brazilian real.

Despite the difficulties, Gerdau maintained an earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 19.6 percent in its most recently completed quarter and declared an operating income of more than 2.38 billion reals ($488.2 million).

“Despite an environment rife with economic and political challenges, we have demonstrated our ability to adapt to different scenarios, with discipline in the management of fixed costs and focus on profitability, combined with the strategy of geographic diversification in the Americas and the product mix,” the company says.

“We observed signs of economic decline in the U.S. amid a possible recession," it adds of North American operations. "Despite slightly lower volumes and prices in the third quarter, the North America [business unit] operated at over 85 percent capacity, with an order book of around 60 days, which, combined with our cost control efforts, sustained the adjusted EBITDA margin at 25 percent.

“Although U.S. federal [spending] programs still represent marginal demand for steel, market analysts believe North America will go through a positive cycle as these programs may significantly boost steel sales in the long term.”

In terms of capital expenditures, Gerdau is expanding long product capacity at is Midlothian, Texas, electric arc furnace mill, as it aims to reach a total capacity of approximately 2 million metric tons per year at the site.