S&P Affirms Ratings on Gerdau SA (GGB)

Standard & Poor's Ratings Services affirmed its 'BBB-' global scale and 'brAAA' Brazil national scale ratings on Gerdau S.A. (Gerdau) (NYSE: GGB). We are also affirming our 'BBB-' rating on Gerdau Ameristeel Corp., Gerdau's North American subsidiary. The outlooks on all the ratings are stable.

"The ratings on Gerdau continue to reflect its operating efficiency in Brazil thanks to its efficient network to procure scrap at attractive costs, low-cost production facilities, and dominant position in the Brazilian long steel market, which shields domestic premiums over time," said Standard & Poor's credit analyst Marcus Fernandes. These factors have generated historically less volatile prices. Gerdau's geographic diversification and relatively large scale, though smaller than largest global producers', and overall prudent strategic decisions have allowed the company to quickly respond to shifting market conditions, reducing volatility of results and credit metrics.

Faster-than-expected deteriorating market conditions in Brazil depressed prices and demand, hurting Gerdau's results. In response, Gerdau has generated stable margins mainly by focusing on cost control and reducing investments. For example, the company recently divested its share in Gallatin Steel Co. for $385 million to Nucor Corporation. In addition, Gerdau's debt remains manageable, and its "strong" liquidity position mitigates the risks of volatile working capital needs. Still, Brazil's weak economy will continue to impair steel demand in 2015, and we expect the company to remain cautious on investment to avoid weakening its credit metrics.

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