Peruvian steelmaker faces significant profiterosion despite modest sales decline
Siderperu, one of Peru's leading steel manufacturers, hasreported a substantial decline in profitability for the first quarter of 2025,despite experiencing only a modest reduction in overall sales. The company'snet profit fell to PEN 33.28 million ($9.09 million), representing a steep37.8% decrease compared to the same period in 2024. This significant profiterosion occurred against a backdrop of relatively stable sales, with netrevenue declining by just 3.7% to PEN 535.7 million ($146.4 million). The disproportionateimpact on bottom-line results highlights the multiple challenges facing thePeruvian steel sector beyond simple market demand fluctuations.
Production costs rise as operational efficiencycomes under pressure
Adding to Siderperu's financial challenges, the companyreported an increase in production costs during Q1 2025, rising 1.53% to reachPEN 472.7 million ($129.2 million). This cost inflation, combined withdeclining sales, created a squeeze on profit margins that significantlyimpacted overall financial performance. The resulting gross profit fell by30.6% to PEN 62.952 million ($17.2 million), while operational profitexperienced an even steeper decline of 38.3%, landing at PEN 49.25 million($13.5 million). These figures suggest that Siderperu is facing structuralchallenges in maintaining operational efficiency during a period of economicuncertainty in the region.
Currency volatility compounds Siderperu'sfinancial challenges
According to company statements, the substantial decline innet profit can be attributed not only to reduced gross profit but also tonegative effects from exchange rate variations. As a Peruvian company withinternational connections through its Brazilian parent company Gerdau,Siderperu appears particularly vulnerable to currency fluctuations that canimpact both input costs and export revenues. This currency exposure representsan additional layer of complexity for the steelmaker's financial management, especiallyduring periods of heightened economic volatility in Latin American markets.
Reduced operational revenue streams intensifyprofit pressure
Beyond the core business challenges, Siderperu also cited areduction in "other operational revenues" as contributing to theprofit decline. While specific details about these revenue streams were notdisclosed, their reduction suggests that the company may be experiencingdifficulties in diversifying its income sources beyond traditional steelproduction. This narrowing of revenue channels could potentially limitSiderperu's ability to offset challenges in its primary business operations,making the company more vulnerable to industry-specific downturns.
Gerdau ownership provides stability amidchallenging market conditions
Despite the current financial headwinds, Siderperumaintains certain structural advantages through its ownership by the BrazilianGerdau group, one of Latin America's largest steel producers. This relationshippotentially provides Siderperu with access to broader operational expertise,capital resources, and market insights that could prove valuable in navigatingthe current challenging environment. The backing of a major regional player mayoffer Siderperu greater resilience as it works to address its profitabilitychallenges.
Production capacity remains substantial despitefinancial setbacks
Siderperu continues to maintain significant productioncapabilities, with an estimated annual capacity of 750,000 metric tons,primarily focused on long steel products such as rebar and wire rod. Thissubstantial production capacity represents a valuable asset for the company asit works to overcome current financial challenges. The focus on long products,which are essential for construction and infrastructure development, positionsSiderperu to potentially benefit from any future uptick in Peru's constructionsector or public infrastructure investments.
Regional context shows varied performance amongPeruvian steel producers
The performance of Siderperu should be viewed within thebroader context of Peru's steel industry, which has shown mixed results inrecent reporting periods. While Siderperu faces declining profits, competitorAceros Arequipa recently reported increased net profits for Q1 2025, suggestingthat company-specific factors rather than industry-wide conditions may bedriving some of Siderperu's challenges. Meanwhile, Shougang Hierro Peru, whichsupplies iron ore to the steel sector, has also reported sharp profit declines,indicating that raw material suppliers are experiencing similar pressures inthe current market environment.
Key Takeaways:
• Siderperu's Q1 2025 net profit fell 37.8% to $9.09million despite only a 3.7% decline in sales revenue, highlighting significantmargin compression in the company's operations.
• Production costs increased by 1.53% to $129.2 millionwhile gross profit declined by 30.6%, suggesting operational challenges beyondmarket demand issues.
• The company specifically identified currency exchangefluctuations and reduced "other operational revenues" as key factorscontributing to the profit decline, indicating vulnerability to macroeconomicfactors beyond the steel market itself.
