UPDATE 1-Usiminas raises prices, turnaround seen losing steam

Tue Feb 19, 2013 11:32am EST

* Sees mining unit share in investment growing in 2013

* Investors see Usiminas running out of turnaround tools

SAO PAULO Feb 19 (Reuters) - Usinas Siderúrgicas de Minas Gerais SA is raising prices for flat steel products in Brazil, taking advantage of higher global prices and expectations of sales growth that could top the industry average, executives said on Tuesday.

This is the second price hike by Usiminas, as Brazil's largest flat steel producer company is known, since last July, executives said on a conference call to discuss fourth-quarter earnings.

Capital expenditures will likely fall to 1.5 billion reais ($765 million) this year from 1.6 billion reais in 2012, in order to help reduce borrowing, said Sergio Leite, senior vice president for sales.

On the call, executives were upbeat about prospects for this year after Chief Executive Julián Eguren's efforts to revamp the company brought about hefty reductions in working capital needs, inventory and an unexpected surge in iron ore sales.

But investors are worried the turnaround plan is losing steam and a recovery could hit a few bumps during 2013.

"Profitability remains the main issue, and intensifying competition should keep pricing power under pressure in the near term," said JPMorgan Securities analyst Rodolfo de Angele. "We continue to expect a tough recovery ahead, and believe the management is left with fewer tools to push for that."

Belo Horizonte, Brazil-based Usiminas lost 283 million reais in the fourth quarter, more than the 114 million reais shortfall estimated by seven analysts in a Thomson Reuters poll. The company lost money for a fourth consecutive quarter, the worst string of quarterly results in a decade.

Eguren is trying to ease Usiminas' most pressing problems, including a rigid cost structure vulnerable to its lack of proprietary energy and mining assets, and an aging mill infrastructure. Eguren, a former executive at Italian-Argentine steel group Ternium SA, took over as CEO late last year when the latter bought a controlling stake in Usiminas.

"We have been facing some very challenging conditions, and what we are doing for Usiminas is focusing all of our efforts in augmenting operational efficiency," Eguren said. 

The CEO said a new phase of the turnaround will be implemented this year with a potential divestiture of assets, which may include selling the unit that serves the automobile industry. Usiminas is the major supplier of flat steel for automakers in Brazil.

Executives acknowledged the performance of its steel unit was disappointing. Earnings before interest, taxes, depreciation and amortization (EBITDA) at the unit fell to 20 million reais in the quarter from 57 million reais in the prior three months, yielding a meager profit margin of 1 percent.

Mining contributed about three-fourths of EBITDA in the fourth quarter. Eguren and other executives expect the iron ore unit to take the lion's share of Usiminas' 2013 investment budget as prices are likely to keep rising.

Preferred Class A shares, the most widely traded class, gained nearly 1 percent, while common shares added 0.3 percent.

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