By Guillermo Parra-Bernal
SAO PAULO Dec 19 Usinas Siderúrgicas de Minas Gerais SA, Brazil's largest flat steel producer, is in talks with domestic distributors to raise prices for plates, pipes and galvanized products in January, four sources with knowledge of the situation said on Thursday.
Three of the sources said the company, which is known as Usiminas, has yet to formally announce the plan, with another saying that the average price increase could be 6 percent. Usiminas declined to confirm any price increases.
Cia Siderúrgica Nacional SA, the country's No. 2 flat steelmaker known as CSN, is also seeking to implement a price increase, said two of the sources, who declined to be identified because they are not authorized to speak publicly on the matter.
Calls to a CSN spokesman in São Paulo seeking comment were not returned.
Shares of Usiminas and CSN drove gains in Brazil's benchmark Bovespa stock index on Thursday, with prices on preferred shares of Usiminas and common shares of CSN hitting their highest level in 12 months.
News of price hikes is generally seen as encouraging for steel mills, which have struggled with various factors in recent years. Overcapacity, weak global prices, rising costs for coal and other raw materials as well as a domestic output glut have all hurt mills in Latin America's largest economy.
Usiminas rose as much as 6.8 percent, hitting an intraday high of 14.85 reais in early afternoon trading. CSN rose up to 3 percent, touching a high of 14.04 reais on Thursday.
The outlook for stronger pricing power at both Usiminas and CSN have so far this year bolstered their shares by 12 percent and 29 percent, respectively.
Higher prices have driven better earnings at both companies. In the third quarter, Usiminas and CSN both reported an improved sales mix and higher operating earnings from the second quarter.
The prospect of further price rises is also signaling that domestic activity and demand in the industry are finally improving.
For steelmakers in Brazil, sales will probably recover and excess capacity will decline as recent government measures to revive growth bear fruit, Instituto Aço Brasil, the group representing the sector, said late last month.