By Tim Seymour
These stocks have been punished lately, and well they should be. Inventories are up, input costs are nasty and a strong real has not helped them compete against foreign rivals. Despite Tuesday's comments from the mothership of steel -- ArcelorMittal (MT) itself -- companies like Usiminas (OTCPK:USNZY) and CSN (SID) have been warning that they see little short-term upturn coming in Brazilian steel prices.
If anything, while international steel prices have climbed significantly, overcapacity in Brazil and a flood of Chinese imported stock is keeping local names under severe pressure. Add in Gerdau (GGB) and this group of companies looks even more crowded. Furthermore, MT warned that steel prices are likely to top out in the second half of this year, so unless USNZY, SID and GGB can catch the wave in the next few months, they may miss this cycle entirely. On the flip side, Brazilian steel is a horizon investment -- choppy over the short term, but the future looks better than what the current price action may lead people to suspect. And if the country's central bankers manage to guide the real lower (or if China lets the yuan rise), the currency overhang at least will disappear. Bottom line: Bad news is already baked into the prices of these stocks, especially USNZY. However, some traders are still accumulating SID.