JPMorgan cuts price in half and lists 3 reasons to sell stock – Money Times

2024 is definitely not the year of Usiminas (USIM5). After weak results and low prospects, the JPMorgan cut the company's recommendation to underweight, equivalent to sell, with a target price of R$5.50, previously at R$11.

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In the year, the stock has fallen 38% and is trading at pandemic price levels. Covid-19in 2020. But for the bank, the fall has foundations, amid a more difficult scenario for the sector.

Along with the change, the bank lowered the expectation of iron ore to US$110 in 2024, US$100/t in 2025 and US$95/t in 2026, a drop of around 3-5% from previous estimates.

On the plus side, USIM5 leads the losses, with a drop of 4.42%.

In the report, the bank raises three arguments. See below:

High costs

Os production costs did not decrease as initially expected.

For JP, despite expectations of significant reductions after the refurbishment of Blast Furnace 3, costs remained high due to the weaker real against the dollar, higher slab prices and mixed production between Ipatinga and Cubatão.

“Therefore, we are adjusting our numbers to reflect stable costs rather than cost reductions for next year,” they say.

China is playing against supply

Another recurring concern of analysts, JP says that the China is putting pressure on steel prices around the world, “and we do not expect the macroeconomic scenario to improve in the short to medium term.”

“Even with a slight recovery in domestic demand and the implementation of tariffs, Usiminas’ margins will probably not fully recover to historical levels any time soon,” he argues.

JP recalls that Usiminas' EBITDA margins, which measure operating results, went from 38% in 2008 to negative 10.4% in the fourth quarter of 2015.

“Now, the story is not much different, and Chinese steel exports continue to flood the Brazilian market”

And although the Government has implemented some tariffs and JP expects a slight recovery in steel prices, these measures have not yet materialized into results.

Iron ore decline

With iron ore prices down, Usiminas is expected to make less profit. JP cut EBITDA expectations for 2025 by 9% and 21% in 2026.

Coincidence or not, futures contracts of ore of ferro fell on Monday, reaching their lowest level in more of a year, as investors assessed the outlook of one ofChina's weak command amid economic recovery ofequal and greater offer.

The contract of January of ore of ferro China's most-traded Dalian Commodity Exchange (DCE) ended daytime trading lower of 4.5% to 658.5 yuan per tonne, marking the weakest level ofsof 17 of August of 2023.