Goldman Sachs updates 2Q26 earnings expectations for LatAm steel stocks: favors Ternium, Gerdau, and Usiminas while remaining bearish on CSN and CMIN

Overview

This Goldman Sachs report updates its earnings models for companies covered in the LatAm steel sector ahead of the 2Q26 earnings season. Key variables include Brazilian domestic steel prices, import pressure, raw material and energy costs, foreign exchange, and iron ore-related costs. The report believes that Brazilian flat steel prices are supported by trade protection and rising costs, but that advance purchasing, elevated channel inventories, easing costs, and weak end demand limit further price increases. For long steel, domestic competition remains high and cost support is declining, with no significant changes expected before year-end.

Core views

The report's core view is that 2Q26 earnings will generally be supported by higher steel prices, but cost-side pressure will widen the divergence among companies. Ternium and Gerdau remain Buy-rated with higher target prices because of their more resilient North American businesses and better price and volume performance. Usiminas remains Buy-rated because of its operating leverage to tightening conditions in Brazil's flat steel market, although its target price is lowered due to medium- and long-term cost pressure. CSN and CMIN remain Sell-rated because of pressure on mining earnings, freight, debt, and free cash flow.

Analysis framework

Goldman Sachs uses a pre-earnings-season model update framework, revaluing foreign exchange and commodity prices at market levels and assessing flat and long steel trends using Brazilian steel imports, apparent consumption, industry confidence, channel inventories, real estate, automotive, appliances, and construction materials demand indicators. Individual company valuations are primarily based on DCF methodologies, with WACC and beta assumptions disclosed.

Methodology notes

• Valuation methodsDCF

  Set 12-month target prices using the discounted cash flow method

  The report applies DCF methods to Gerdau, Usiminas, CSN, CMIN, and Ternium. Disclosed assumptions include a 12.1% WACC and 1.10 beta for Gerdau, a 12.0% WACC and 1.3 beta for Usiminas, an 11.7% WACC and 1.3 beta for CSN, an 11.1% WACC and 0.9 beta for CMIN, and an 11.1% WACC and 1.2 beta for Ternium.

• Earnings forecastsModel updates and mark-to-market revaluation

  Update EBITDA forecasts ahead of 2Q26 earnings and revalue them based on foreign exchange and commodity prices

  The report adjusts 2026/2027/2028 EBITDA forecasts as follows: Ternium raised +5%/+1%/+1%, Gerdau raised +12%/+12%/+5%, Usiminas adjusted +2%/-7%/-3%, CSN lowered -2%/-2%/-3%, and CMIN lowered -14%/-19%/-22%.

• Market structureImport parity and supply-demand monitoring

  Assess Brazilian steel price support through imports, price parity, inventories, and end demand

  The report tracks Brazilian flat and long steel imports, price differentials versus Chinese HRC and rebar, channel inventories, industry confidence, and automotive, real estate, appliance, and construction materials demand to assess the ability to implement price increases and the extent of future supply-demand tightening.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Ternium (TX)

  Core preferred name; Buy maintained and target price raised

  Strengths

  Stronger earnings in Mexico and Argentina, with Mexican cost growth below prior expectations and realized prices expected to remain strong; North American markets are more resilient and protected.

  Weaknesses

  Affected by Usiminas results, raw material and electricity costs, uncertainty surrounding USMCA negotiations, and capital expenditure projects.

  Comparison

  Compared with Brazilian domestic steelmakers, North American and Mexican exposure provides greater price and demand resilience.

  Risks

  Mexican volume growth below expectations, raw material or electricity costs above expectations, Usiminas earnings below expectations, a lower payout ratio, capital expenditure overruns at the Pesqueria project, slower-than-expected deleveraging, and higher provisions related to litigation with CSN.

• Gerdau (GGBR4.SA)

  Core preferred name; Buy maintained and target price raised

  Strengths

  Stronger North American business, improving prices and volumes, and foreign exchange support; 2026/2027/2028 EBITDA forecasts were raised significantly.

  Weaknesses

  The outlook for Brazilian prices is slightly weaker, particularly for long steel; the Miguel Burnier start-up has been delayed somewhat.

  Comparison

  Compared with a company purely exposed to Brazilian steel, Gerdau benefits from a stronger North American segment, although Brazilian long steel remains a drag.

  Risks

  Higher-than-expected Chinese exports, Brazilian macroeconomic improvement leading to BRL appreciation and pressure on domestic steel prices, faster normalization of North American margins, and Argentine political instability affecting South American operations.

• Usiminas (USIM5.SA)

  Buy-rated beneficiary of tightening Brazilian flat steel conditions, but with a lower target price

  Strengths

  High operating leverage to tightening conditions in Brazil's flat steel market, with slightly better realized prices for steel and mining in 2026.

  Weaknesses

  Steel and mining segment cost pressure after 2027 leads to lower earnings forecasts.

  Comparison

  More concentrated in Brazil's flat steel cycle than Gerdau, making it more sensitive to changes in imports and domestic flat steel prices.

  Risks

  Higher-than-expected Chinese exports, BRL appreciation pressuring domestic steel prices, cost reduction benefits below expectations, investment requirements at the MUSA plant weighing on the iron ore business, weaker-than-expected iron ore prices, and higher-than-expected maintenance and new project capital expenditures.

• CSN (CSNA3.SA)

  Sell maintained; target price lowered

  Strengths

  The steel business outlook has improved slightly; earnings could surprise positively if iron ore expansion progresses faster than expected or Chinese and overseas demand is stronger than expected.

  Weaknesses

  Weaker realized prices in mining, stronger USD increasing pressure from dollar-denominated debt, and ongoing free cash flow and balance sheet pressure.

  Comparison

  Compared with the Buy-rated names, CSN is more sensitive to iron ore, debt, and cash flow pressures, resulting in a weaker risk-reward profile.

  Risks

  Upside risks to the Sell rating include faster-than-expected iron ore expansion, lower oil prices and inflation improving costs, stronger Chinese or non-Chinese demand, better-than-expected Brazilian macroeconomic conditions and steel demand, and greater cost savings and revenue from energy acquisitions.

• CSN Mineração (CMIN3.SA)

  Sell maintained; target price lowered

  Strengths

  Better-than-expected operating performance could partially offset iron ore price pressure and support free cash flow.

  Weaknesses

  Lower realized prices, significantly higher freight costs expected to normalize at a higher level, wider low-grade discounts, and declining iron ore profitability.

  Comparison

  Compared with integrated steelmakers, CMIN has more direct exposure to iron ore prices, freight costs, and grade discounts.

  Risks

  Upside risks to the Sell rating include better-than-expected operating performance and stronger Chinese economic growth or non-Chinese demand, supporting iron ore prices and earnings.

Key data

• Brazil May apparent steel consumptionFlat steel down 18% year over year, long steel down 7% year over year; total consumption down 2% month over monthLong steel down 8% month over month, while flat steel rose 2% month over month.
• Brazil May steel importsTotal imports down 57% year over year and down 15% month over month to 266ktFlat steel imports fell 22% month over month, while long steel imports were flat; imports accounted for approximately 13% of steel consumption.
• Brazil steel industry confidence indexFell to 48 in June, down 12.1 percentage points month over monthA reading below 50 indicates a pessimistic industry view, mainly due to difficulty securing acceptance of price increases and high inventories.
• Steel distributor inventoriesInventories were flat month over month and up 8% year over year, with inventory equivalent to 3.4 monthsThe historical level is approximately 3.0 months. June shipments are expected to be flat month over month, and buyers may be destocking.
• Brazil auto production254k vehicles in May, up 6% month over month and 15% year over yearAutomotive production accounts for approximately 15%-20% of Brazilian steel demand, approximately 33% of Usiminas sales, and 12% of CSN sales.
• Ternium target price$59.0/sharePrevious: $57.0/share; Buy rating maintained, with the current price at $44.83, implying approximately 31.6% upside.
• Gerdau target priceR$27.0/sharePrevious: R$25.0/share; Buy rating maintained, with the current price at R$22.82, implying approximately 18.3% upside.
• Usiminas target priceR$10.0/sharePrevious: R$10.50/share; Buy rating maintained, with the current price at R$8.38, implying approximately 19.3% upside.
• CSN target priceR$4.3/share; a separate valuation risk section lists R$3.8/shareSell rating maintained; the report text contains an inconsistency between the target price table and the valuation section, which should be checked against the original text.
• CMIN target priceR$3.8/sharePrevious: R$4.3/share; Sell rating maintained.

Impact & implications

The investment implication is that Brazilian steel sector earnings may remain supported by prices in the short term, but weak demand, elevated channel inventories, and difficulty implementing price increases limit a broad sector re-rating. In portfolio selection, the report favors Ternium and Gerdau for their protected and resilient North American markets, as well as Usiminas, which benefits from tightening conditions in Brazil's flat steel market. It remains cautious on CSN and CMIN, which are more sensitive to mining costs, freight, and low-grade discounts.

Risks

• Higher-than-expected Chinese steel exports could intensify competition for Brazilian prices and volumes.
• Improved Brazilian macroeconomic conditions and reduced uncertainty could strengthen the BRL against the USD, pressuring domestic steel prices and earnings.
• Raw material, coking coal, electricity, diesel, and freight costs above expectations could erode steelmaker and mining profitability.
• Faster-than-expected normalization of North American steel margins could lead to downward revisions to Ternium and Gerdau earnings.
• Elevated Brazilian channel inventories and weak end demand could limit the implementation of price increases.
• Weaker-than-expected iron ore prices, wider low-grade discounts, or persistently high freight costs would continue to weigh on CSN and CMIN.
• Argentine political instability could affect South American business performance.
• Capital expenditure overruns, project delays, or slower-than-expected deleveraging could weigh on shareholder returns.

What to watch

• Whether the elevated level of Vietnamese flat steel imports into Brazil in June continues.
• Whether Brazil's steel import share of consumption remains low and the market tightens further in the second half of 2026.
• The actual implementation of the third round of Brazilian flat steel price increases and long steel price increases.
• The pace at which distributor inventories decline from 3.4 months toward the historical level of 3.0 months.
• The transmission of automotive, real estate, appliance, and construction materials demand indicators to steel consumption.
• The impact of diesel, freight, and raw material costs on margins at companies with mining exposure.
• The impact of BRL/USD exchange rate movements on Brazilian domestic steel prices and dollar-denominated debt.
• Company guidance on 3Q cost pass-through and price outlook following the release of 2Q26 results.