December 5, 2022
CSN (CSNA3) and CSN Mineração (CMIN3): Results and Directives Not Exciting, But Rumors About China Reinforce Actions

CSN (CSNA3) and CSN Mineração (CMIN3): Results and Directives Not Exciting, But Rumors About China Reinforce Actions

consequences CSN (CSNA3) And from CSN . Mining (CMIN3) from Q3 2022 (Q3 Q22) a very positive reading from analysts, who are no longer expecting very good numbers for mining and steel.

However, CMIN3 closed with a gain of 7.58%, at R$3.55, this Tuesday, while CSNA3 rose by 4.64%, at R$12.85. Much of the progress comes amid speculation that China may ease Covid-19 restriction measures, after signs of maintaining policy combined with the country’s weak data weighed on the bear market. On this date, Dalian crude futures are up 2.2%, after losses of 15% in October. Vale shares (VALE3) also posted a gain of 3.04% to R$69.17.

In addition, some analysts considered the medium-term scenario for companies to be more positive, as highlighted by Itaú BBA when commenting on the corporate earnings conference call.

CSN management sees good results in the steel business in the fourth quarter, with lower potential costs and flexible storage volumes. For the mining division, management expects lower costs in the short term, aided by the acquisition of Quebra-Queixo assets, and higher quality ore projects in 2023, as well as seeing synergies following the LaFargecim merger.

Looking at third-quarter balance sheets, Eleven notes that CSN’s results were hit hard by lower steel and crude prices in the quarter and higher costs in the steel industry. LafargeHolcim’s incorporation into the cement division’s positive results and dynamics partially mitigated negative results for the company’s key segments.

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“Although all sectors showed significant volume growth, lower iron and steel ore prices, as well as higher operating costs, particularly in the steel industry, made Ebitda [lucro antes de juros, impostos, depreciações e amortizações] 17% reduction compared to 2Q22,” analysts assess from the house.

The most notable negative was in the steel industry. With Ebitda valued at R$1.3 billion, 34% lower than in Q222, with an average price 8% lower and cost 11% higher than the previous quarter, even with a 6% lower slab cost per ton to reach to 4133 Brazilian riyals per ton. . However, volume showed good dynamics, growing by 9% in the quarter and 18% in the year, demonstrating the strength of the local market.

Eleven has set the target price for the review to take into account recent purchases and a deterioration scenario in crude and steel prices.

For Bradesco BBI, CSN has published line numbers as expected. On the hard side, CSN has managed to increase volumes significantly, outperforming the overall market performance.

“The company continued to feel cost pressures, which, combined with lower steel prices, drove Ebitda per ton of steel to approximately $210, versus $360 per ton in Q222.”

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BBI notes that steel costs are expected to trend lower as lower raw material prices show in results.

“Also, the cement numbers were stronger against our expectations, while the results should be
You start to feel the full benefit of Holcim’s assets in the coming quarters (especially as CSN picks up on synergies). On the more negative side, the leverage has increased, while the company has developed some investments due to delays in iron ore expansion projects.

For Itaú BBA, the numbers were slightly negative, with the mining and steel sectors impacted by lower prices, despite lower costs and higher volumes on a quarterly basis. The leverage jumped from 1x to 1.7x as a result of the acquisition of Lafarge Holcim, but it still showed good cash flow.

On the downside, the company revised its iron ore production guidance (including third party purchases) to 34,000 tons in 2022 (versus 36-38,000 tons before) and introduced a new leverage target of 1.75 x 1.95 times between 2022 and 2023 ( versus before 1 time).

CSN . Mining

For BBI and Vale, CSN Mineração reported lower-than-expected Q3 22 results due to higher costs. Ebitda totaled R$926 million, 6% below the bank’s forecast, 2% growth in the quarter and 2% in one year.

A stronger volume performance was expected as headwinds from production hits eased in the first half of the year.

The figures were affected by the crude price, which averaged $103.30 per ton on the international market, 25% lower compared to Q222, and price allocations from previous quarters affected the result by R$564 million, bringing the average price CSN crude to $57 per ton. Volume sold was positively affected by seasonality for the quarter, reaching 9.0 million tons, an increase of 20% in the quarter and 11% in the year.

Like the parent company, CSN Mineração has (again) updated its production guidance to 34 million tons in 2022 (from 36 to 38 million previously), which translates to 9.6 million tons production for the fourth quarter.

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“Therefore, we maintain the only neutral recommendation for CMIN3 and continue to prefer VALE3 among the iron ore related names at this moment,” the bank says.

XP also estimates that the miner delivered weak numbers in the quarter, with Ebitda down 5% than expected by the house, mainly due to higher-than-expected overhead and administrative expenses.

For analysts, the production guidance for 2022 again revised downward is negative news. “CMIN has shown disappointing results, due to a combination of lower production coupled with higher costs.” However, XP has a buy recommendation for the asset (with a target price of R$7.80 per share), but it highlights the difficulty of a short-term catalyst for reclassification as well as improving Chinese demand.

Eleven indicates that the company reported another weak operating result due to a lower crude price, but that was already expected. However, there has been progress in volumes sold and lower operating and logistical costs.

The cost of C1, or the cost of producing iron ore fines from mine to port, was 20.1% lower than in Q222 and came to $19.40 per ton, as a result of lower mine logistics costs and mitigating fixed costs with larger volume.
produced. Sea freight also showed a significant decrease of 21% compared to Q222, reaching $24.10 per ton due to the normalization of the ocean logistics market and reduced pressure on fuel costs.

Eleven notes that the company has a very comfortable cash position of R$1.2 billion. This allows favorable conditions to continue its investments in capacity expansion.

We hope that with lower volatility in crude prices in the fourth quarter, price provisions can be reduced, which may have a positive impact on the company’s results. He pointed out that the target price is under review to adapt to the sharp decline in the price of crude, as well as the company’s plans for growth projects, which we believe may be lower due to the deterioration of the market.

CMIN3 stocks performed better in the session than CSNA3. However, in a report, Goldman Sachs indicated that it has a relative preference for CSN (with a neutral rating) vs. CMIN3 (with a sell rating), considering the overall scenario of preference for steel vs. iron ore, but also for diversification of greater earnings in an uncertain environment . “Our commodity team expects iron ore prices to remain under pressure and reach $70 per tonne in the next three months (spot price $78 per ton),” he estimates.

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After conference calls with the market, BBI reiterated its neutral recommendation for both stocks. “CSN has maintained a constructive overview of its business, buoyed by good volumes and out-of-the-box costs (both due to lower raw material prices and internal initiatives). At the same time, the company realized the most uncertain macroeconomic scenario and lower commodity prices. Consequently, the company said it is reassessing the priorities of growth projects, while monitoring merger and acquisition opportunities,” the analysts assessed.

Thus, steel sector exposure is favored by Gerdau (GGBR4) at this time and maintains a neutral recommendation for CSNA3 and CMIN3.

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