Brazilian firms tout U.S. plants, leaning into Trump trade wars

Companhia Siderurgica Nacional SA

08/11/2024 16:04

By Alberto Alerigi and Gabriel Araujo
       SAO PAULO/WASHINGTON, Nov 7 (Reuters) - Two of Brazil's
biggest industrial firms, steelmaker Gerdau  GGBR4.SA  and
plastics producer Braskem  BRKM5.SA , are already touting their
substantial U.S. operations as a hedge against the risk of
protectionism from President-elect Donald Trump.
    Trump has floated the idea of a 10% or higher tariff on all
goods imported into the United States, a move he says would
eliminate the trade deficit, while threatening a 200% tariff on
some imported cars, particularly from Mexico.
    On calls with investors this week, Gerdau and Braskem were
quick to point out that a large chunk of their businesses are
located in the United States, positioning them to actually boost
profits if those policies take effect.
    Gerdau's Chief Financial Officer Rafael Japur told an
earnings call that Trump's measures are expected to be positive
for U.S. steel demand, helping its steelmaking plants there.
    The Brazilian steelmaker, which operates 11 long and special
steel production units in the U.S. and Canada, also touted the
benefits of a stronger dollar for its Brazilian operations,
where it would compete with more expensive imports.
    Gerdau shares jumped in Sao Paulo on the U.S. election
results, outperforming peers with more exposure to the Brazilian
market such as Usiminas  USIM5.SA  and CSN  CSNA3.SA . 
    "Following Trump's victory, we see Gerdau as a key
beneficiary in the region," analysts at BTG Pactual said in a
note to clients, adding that the Republican's trade policy could
mean a stronger-for-longer pricing environment.
    Trump's protectionist approach and focus on bolstering U.S.
industry would further curb direct and indirect steel imports,
the analysts said, noting that potential corporate tax cuts
could also support Gerdau's financial performance.
    Petrochemical producer Braskem, which is owned by state-run
oil giant Petrobras  PETR4.SA  and engineering group Novonor as
major shareholders, could also gain from Trump's policies.
    Braskem CFO Pedro de Freitas told reporters on Thursday that
it was a key domestic supplier of polypropylene to the U.S.
automotive industry, which stands to benefit from Trump's
protectionism.
    Braskem has five polypropylene plants in U.S. states from
Pennsylvania and West Virginia to Texas - all of which threw
their support to Trump in his election win against Democratic
Vice President Kamala Harris this week.
    The U.S. accounts for 15% to 20% of Braskem's core earnings,
Freitas said.
    Both Braskem and Gerdau also urged Brazil to lean into what
could be a new trade war, imposing tariffs to protect the
Brazilian market in the face of U.S. protectionism.
    Brazilian steelmakers have long urged the government to
impose taxes to combat what they consider "dumping" practices
from Chinese suppliers who have flooded the market with cheap
products. Last month, Brazil's government responded with roughly
25% import tariffs.
    Gerdau CEO Gustavo Werneck said those tariffs should rise to
"at least 35%" as steel that was being sold to the U.S. may now
be directed to other locations, including Brazil. China has
managed to sell steel to Brazil even with the 25% levy, he said.
    Braskem's Freitas had a similar view.
    "If the U.S. is more closed, those who were selling there
will sell elsewhere - and products will come to Brazil," he
said.
    New tariffs in Brazil should offer Braskem some short-term
help, analysts say, pointing to the increase in the import tax
for polyethylene, polypropylene and PVC from 12.6% to 20%.

 (Reporting by Alberto Alerigi Jr in Sao Paulo and Gabriel
Araujo in Washington; Editing by Brad Haynes and Andrea Ricci)
 ((Gabriel.Araujo2@thomsonreuters.com; +55 11 5047-3352;))