JPMorgan upgrades Usiminas stock rating to Neutral from Underweight

JPMorgan has upgraded Brazilian steelmaker Usiminas (USIM5) to Neutral from Underweight, asserting that prior concerns over higher costs and increased Chinese steel imports are now reflected in the stock price. This re-rating follows a substantial ~60% decline in Usiminas shares to R$4, significantly underperforming the Bovespa's 10% gain over the same period. The firm anticipates Usiminas will benefit from falling raw material costs in coming quarters and potential upside from Brazilian anti-dumping measures, noting the company currently trades at 3.7x EV/EBITDA based on 2026 estimates.

Analysis

JPMorgan has upgraded Usiminas (USIM5) to Neutral from Underweight, signaling a belief that significant headwinds are now priced into the stock. The previous downgrade was driven by higher-than-expected costs and a surge in steel imports from China. This re-rating follows a substantial ~60% decline in Usiminas shares from a peak of R$11 to approximately R$4, a period during which the Bovespa index gained 10%, highlighting the stock's severe underperformance. Looking forward, JPMorgan identifies potential tailwinds, including lower raw material costs in the coming quarters and two key external variables: the potential approval of anti-dumping measures in Brazil and the impact of China's anti-involution policies. The bank's valuation model places the company at a 3.7x EV/EBITDA multiple based on 2026 estimates, suggesting the current price reflects the recent operational and market challenges.

Key Decisions for Investors

• The upgrade to Neutral from Underweight suggests that the primary negative catalysts are largely reflected in the current share price, making it reasonable for existing investors to hold their positions rather than selling at current lows.
• Potential investors should note that while the 3.7x 2026E EV/EBITDA multiple appears low, significant upside is contingent on external factors, primarily the implementation of Brazilian anti-dumping measures against steel imports.
• Monitor trends in raw material costs and any developments regarding Brazilian trade policy on steel, as these are the key catalysts identified by JPMorgan that could shift the stock's risk/reward profile from its current neutral state.