By Brazil Stock Guide – During Gerdau’s third-quarter earnings call, the tone turned urgent. Analysts pressed executives about the company’s shrinking competitiveness in Brazil, where steel imports have surged and margins have eroded. CEO Gustavo Werneck warned that the domestic industry is reaching “the limit of what can be done” without government intervention.
“We’ve reached the limit”
Asked by Rodolfo de Angeli of JP Morgan about possible strategies to reverse the decline, Werneck was blunt: “We’ve reached the limit. There’s nothing more to cut, no more shifts to close. The turning point will only come through trade defense.” Imports now account for nearly 30% of domestic sales, or roughly 6 million tons a year — a level the CEO described as “devastating for local producers.”
“There’s now a consensus that didn’t exist before,” he continued. “If nothing is done, Brazil’s industrial base will disappear.” Werneck cited the growing alignment among industrial associations and direct involvement from President Lula, but stressed that action must come quickly. “The import steamroller has hit everyone. We need structural defense before the steel industry is dismantled.”
Analysts question Brazil strategy
Carlos de Alba from Morgan Stanley asked what Gerdau would do if anti-dumping measures fail or fall short. Gustavo Werneck said the company would “accelerate structural transformation” in its Brazilian footprint — reviewing production routes and possibly consolidating operations. “We’ll have to reassess our three production routes — scrap-based, charcoal, and integrated — and decide which make sense to maintain,” he said.
He added that while new projects like the Miguel Burnier sustainable mining complex will help cut costs at the Ouro Branco mill from 2026 onward, such gains would be “wiped out by subsidized Chinese steel” without government protection.
The North American contrast
While Brazil drags on performance, Gerdau’s U.S. and Canadian operations are booming. North America accounted for 65% of consolidated EBITDA, supported by strong demand in data centers, renewable energy, and infrastructure. “The difference is striking,” Werneck said. “There, we have predictability and rule stability; here, instability and unfair competition.”
Asked whether capital allocation would increasingly favor the U.S., Werneck replied: “It’s easier to invest a dollar in the United States than in Brazil.” He emphasized that the company will approve new domestic projects only if they improve cost efficiency and resilience.
Fiscal discipline and limited optimism
CFO Rafael Japur reaffirmed that Gerdau continues to prioritize share buybacks over dividends, signaling cautious optimism about cash generation but little appetite for new capacity expansion in Brazil. “This is no longer about cutting costs — it’s about ensuring that Brazilian steel can compete on equal terms,” he said.
With domestic EBITDA margins below 10% — less than half the level in North America — Gerdau’s message was clear: the company can adapt, but without a trade shield, it cannot thrive. “If protection doesn’t come,” Werneck warned, “Brazil will become just another importer of steel.”
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