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Weak Brazilian economy takes toll on Usiminas operations

Brazilian steelmaker Usiminas' operational idleness level is currently at 40% as a result of the scarce domestic demand in the country

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by Frederico Barbosa, BNamericas

“Brazil’s economic activity, although stable, shows no recovery signs,” VP Ronald Seckelmann told analysts on a call.

The country’s weak economy is making it difficult for Usiminas, Brazil’s largest flat steel producer, to increase the company’s positive cash flow from the 100mn reais (US$31.8mn) reported in the first half, the VP said.

“On account of the economic situation, we expect a positive cash flow for H2, but nothing much higher than what we saw in the first six months,” he added.

Meanwhile, Usiminas reported a net profit of 176mn reais for Q2, compared with a net loss of 123mn reais in 2Q16.

Adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) rose to 750mn reais from 68mn reais. The adjusted Ebitda margin increased to 29% from 3%.

CAPEX

Usiminas’ capital expenditure is set to grow in the coming months, Seckelmann said.

“We maintain our disbursements at the 250-300mn reais range, with stronger disbursements in the second half.”

According to Seckelmann, Usiminas is preparing to restart the blast furnace No. 1 at the company’s Ipatinga mill in Minas Gerais state. About 80mn reais will be needed to restart the furnace.

Usiminas turned off the furnace in June 2015 as a cost-cutting measure intended to adapt output to demand.

The steelmaker said in an earnings release that it invested 34mn reais in the second quarter, compared with 23mn reais and 50mn reais in 1Q17 and 4Q16, respectively.

Usiminas’ capex breakdown in the quarter was 75% on steel, 14% on mining, 4% on capital goods and 7% applied to steel processing, it said.