Gerdau SA (ADR) (NYSE:GGB), a Brazil based holding company, manufacturer and seller of steel products, is suffering from the huge commodity bear market just like most other steel companies. Until the cycle turns around, it is very tough for any of the companies to see the face of profit again. Nearly all the macro factors are against this sector as crude oil hovers near the multi-year lows, the Dollar is registering a new 52-week high nearly every month and the base metals are facing a supply glut and lackluster demand globally.
Iraq is exporting the highest amount of oil in the last 30-40 years and Russia hasn’t exported this much since the breakout of the Soviet Union. The economic strength in China, the largest importer of steel making materials, is still suspect, which is not only affecting the demand of oil but that of the base metals too. The iron ore inventories in the Chinese ports fell to the lowest levels in the last 1 year too. When one considers the tough challenges the Brazilian economy is facing for the last year or so, the difficulty of Gerdau SA (ADR) (NYSE:GGB) becomes clearer.
The weakness of the company is evident from the technical charts too, showing a consistent series of lower highs and lower lows in the last few years. Every support broken has acted as a very strong resistance and the supply pressure has never been absorbed. The entire down-trending price action in the last 2 years is nicely contained in a channel and that gives us a medium term target of $2, a loss of more than 30%.
The volume chart suggests a uniform distribution, with no sign of any bottom formation. Any investor would do well to completely avoid the stock and refrain from any kind of bottom fishing.