Common villain: What do you do with VALE3 and CMIN3, given the weakness of iron ore?

Common villain: What do you do with VALE3 and CMIN3, given the weakness of iron ore?

Vale and CSN felt the impact of lower iron ore on second-quarter results (Photo: REUTERS/Yusuf Ahmad)

The yes (VALE3) and the CSN (CSNA3) I felt the effects of the correction in prices iron ore. The impact can be seen in the recent results of both companies, which did not satisfy the market by reporting weaker data in the second quarter of the year.

According to Edmar de Oliveira, operator of the Variable Income Bureau at one investmentThis earnings season, especially from these two companies, explained that the size of the effect commodity Very large (above 50-60%, depending on the dynamics).

“So we Takes four quarters In the last year, especially the first two, when we had a favorable wind for companies, we could see a growth in earnings, as well as an increase in revenue.Recipe in exponential scale,” expert highlights.

Vale generated net income of $6.2 billion in the second quarter of 2022, a 17.7% decrease compared to the same period in 2021. The company’s net sales revenue was $11.1 billion in the first quarter, down 32.4% from the same period in 2021. The amount recorded in the previous year, 16.5 billion US dollars.

In the case of the CSN numbers, the pressure came mainly from the mining sector, which, in addition to being hit by lower iron ore prices, felt pressure from rising costs.

As a result, the CSN . Mining (CMIN3) Ebitda announced adjusted EBITDA of R$907 million, down 82% YoY and 62% QoQ.

Are there more falls there?

The last few days of iron ore trading have been bad. This Thursday (18), commodity futures traded on the Chinese (Dalian) futures market, referring to January, fell 2.76%, closing below 700 yuan.

Iron ore was punished by shutdown of factories due to the heat wave in China. According to international media reports, the Chinese government has ordered nearly all factories in Sichuan Province to close for six days, with other provinces such as Zhejiang and Anhui likely to take the same measures.

Oliveira believes iron ore may fall further, but the decline should be limited, given the outlook for Chinese demand with stimulus injections by the government and infrastructure plans being implemented in other regions, such as the United States and Europe.

“If this happens, the pullback area is reduced or limited to this level ($80-90),” says the analyst.

“It’s really quite asymmetric, and that asymmetry is getting smaller and smaller,” he adds.

Henrique Tavares, Analyst at DV Investhe says, in addition to stimulus in China, lower guidance Iron ore producers must help maintain prices, because they are taking supply from the market.

Another point Tavares made is that higher production costs – the main factor for the weaker results for miners in the second quarter – end up killing small firms in the market, which should also limit prices.

The worst has gone

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The coming quarters should show improvements in Vale and CSN (Image: REUTERS/David Gray)

Oliveira and Tavares understand that the tone for Vale and CSN’s next results will be on a rebound.

Oliveira believes the “lowest point in results” was the second quarter. Given the dynamics of infrastructure stimulus in developed countries, the coming quarters tend to improve.

“Because we see clearer signs on the part of the infrastructure there, that should improve the results. And the basis of comparison too. We had worse numbers. [no segundo trimestre]. If there is a marginal improvement up front, we will see a positive reflection in the numbers,” he says.

A DV Invest analyst says the third quarter will be “a little more reasonable” as shipping cost pressure eases due to a slowdown in energy goods.

Tavares also notes that the second half of the year is usually better in terms of production and sales volumes for mining companies. Therefore, a recovery is expected in the sector numbers.

CMIN3 or VALE3?

For Oliveira and Tavares, Vale and CSN Mineração shares are attractive.

According to the specialist at DV Invest, the two companies have interesting propositions, although the attractiveness is reduced due to the deteriorating overall scenario.

Oliveira and Tavares point out, however, that in terms of evaluationCMIN3 has a slightly larger asymmetry.

Tavares says CSN Mineração has the potential to grow and Looking forward to Searching for business opportunities – including potential acquisitions.

Despite this, Vale stocks are an interesting option. Tavares advocates that the company is a low-cost producer and, despite expectations of limited cash flow, should continue with a strong shareholder return strategy.

“Vale continues to have the potential to be one of the largest sources of cash, with return to shareholders higher than its peers,” the analyst says.

Oliveira draws attention to evaluation The attractiveness of Vale, which, being a more powerful company, provides greater security for investors.

“sAnd the customer profile is more oriented big caps And security, more valid for Vale. It is the largest super-competitive company, with very good management. At the same time, she did a better job than CSN Mineração recently,” complements One’s variable income desk operator.

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