Companhia Siderurgica Nacional

Brazil (EWZ) is expected to see a reversal of the downward trend in its economic growth in 2017, mostly with the help of rising commodity prices and improvements in exports.

If any proof were required that equities run on emotion, Brazilian markets have provided it. This isn’t to say there aren’t quality companies in the market.

Brazil finds itself in a phenomenon known as stagflation, characterized by slowing economic growth, rising inflation, and high unemployment.

The Brazilian economy depends on commodity movement. The equity market is an important leading indicator of the country’s economy.

Markets expect Brazil to bottom out soon. The recent trend reversal in emerging markets could be a sign that a reversal in Brazil’s fortune is close.

Inflation in Brazil continues to soar. It’s at 10.4% despite the central bank’s several attempts at interest rate hikes.

The steel industry was banking on a possible 2H15 recovery. However, the operating environment has become even more challenging.

The Brazilian real gained against the US dollar on September 3, 2015, after the Central Bank of Brazil announced the previous day that it will keep interest rates on hold.

The Brazilian real fell by 0.88% against the US dollar on August 28, 2015. GDP data for the second quarter confirmed a contraction in the economy.

Spot steel prices have inched up a bit after hitting their low in May. If the US steel demand stays strong and imports decline further, as they did in May, spot steel prices could see further upward movement.

Housing starts are a leading indicator of residential construction activity. Housing starts in May increased 4.6% on a year-over-year basis. However, compared to April, they dipped 11.1%.

Steel scrap prices tanked by more than 25% in February. This helped mini mills. They were at a competitive disadvantage due to the decline in iron ore and coal prices.

The WSA expects global steel consumption to grow by 0.5% in 2015 on a YoY basis. This was highlighted in the short range outlook released on April 20.

Clearly, Chinese real estate demand indicators are weakening. This is a negative sign for steel companies like Mechel (MTL) and Companhia Siderurgica Nacional (SID).

Metal service centers acquire primary metals like carbon steel and aluminum from metal producers and process them to customer specifications.

The global steel industry (XME) has seen its fortune change ever since OPEC decided against reducing its daily oil production.

The consumer confidence index reached an 11-year high of 98.1 in January. The index stood at 93 in the latest reading in March.

Steel production up until April 4 is down 6.3% over the corresponding period last year. The decline in steel production is negative for steel companies in the US.

Steel prices are a key driver for steel companies. Last year, steel prices dropped by ~10%.

A massive increase in steel imports has been the single biggest risk for the US steel industry. U.S. Steel faces challenges in its tubular segment also.

A low capacity utilization rate increases competition between existing industry players. This pressures steel prices as producers try to increase sales.