Gerdau S.A. (GGB): 5 FORCES Analysis [Nov-2025 Updated]

You're looking at Gerdau S.A. right now, and the story is a tale of two continents: a strong North American shield, which delivered 65% of Q3 2025 EBITDA, is successfully buffering the intense, import-driven rivalry in Brazil, where foreign steel penetration hit 25% in the first nine months of the year. Honestly, managing raw material costs is still the key battle, which is why Gerdau just spent $60 million on US scrap assets while bringing its own iron ore online by year-end to cut external reliance. Before diving into the full Five Forces breakdown, know this: Gerdau's R$4.7 billion 2026 CapEx plan reflects a clear pivot to protect that profitable US base while navigating high barriers to entry against new rivals. Let's map out exactly how these forces are shaping the business as we head into 2026.

Gerdau S.A. (GGB) - Porter's Five Forces: Bargaining power of suppliers

The bargaining power of suppliers for Gerdau S.A. is shaped by the cost dynamics of key raw materials, primarily ferrous scrap and energy, which are subject to significant market fluctuations.

Ferrous scrap, a primary input, has seen notable price movement throughout 2025. National average \#1 busheling prices cumulatively fell by \$18/gross ton (gt) year-to-date (YTD) leading up to October 2025, while shred prices declined by \$25/gt over the same period. Market sentiment in October 2025 indicated a projected 3.6% month-on-month price decline, following a 2.6% drop in September 2025. This demonstrates high volatility, as an increase in scrap prices or a shortage in supply would directly impact Gerdau S.A.'s production costs and potentially reduce operating margins.

To counter the inherent volatility and secure a competitive cost structure for this critical input, Gerdau S.A. actively pursues vertical integration and strategic acquisitions. The company's efforts to increase captive ferrous scrap capture through proprietary channels are evident in recent capital deployment:

The energy input side, specifically natural gas in Brazil, presents a cost challenge relative to international benchmarks. For businesses, the price of natural gas in Brazil in March 2025 was 0.092 U.S. Dollar per kWh, compared to the world price of 0.079 U.S. Dollar per kWh for businesses. While Petrobras implemented a 14% price reduction starting August 1, 2025, this followed a cumulative 32% decline since December 2022, indicating a dynamic but potentially still high-cost environment for Gerdau S.A.'s Brazilian operations.

Gerdau S.A.'s investment in its iron ore assets, specifically the brownfield expansion at the Miguel Burnier mine in Itabirito (MG), is a direct move to lessen reliance on external ore suppliers. The expansion is scheduled to start operating at the end of 2025. The CEO projects that Gerdau S.A. should have a surplus production of 2 million tons of iron ore starting in 2026, with the ore from the new platform channeling into the company's four steel plants in Minas Gerais.

The supplier power is managed through these actions, focusing on securing primary inputs:

• Securing scrap supply via the \$60 million acquisition of Dales Recycling Partnership assets in the US.
• Increasing captive iron ore supply from the Miguel Burnier mine expansion, expected to yield a 2 million ton surplus starting in 2026.
• The company's 2025 investment plan was estimated at R\$ 6.0 billion.

Gerdau S.A. (GGB) - Porter's Five Forces: Bargaining power of customers

You're assessing Gerdau S.A.'s customer landscape as of late 2025, and the picture is distinctly split between its major operational regions. In North America, the bargaining power of customers is leaning toward moderate-to-low. This is a direct result of sustained, strong demand from key sectors like data centers and infrastructure projects, which are keeping order books full. We see this leverage shift clearly in the order book metrics. Gerdau's North American order backlog stood at approximately 70 days in the third quarter of 2025, which is notably above the historical average of around 60 days. This extended visibility into future demand reduces the immediate leverage customers have to demand price concessions or faster turnaround times.

The North American segment's strength is quantified by its operational output. For instance, Q3 2025 shipments reached 1,293,000 metric tons, and this region contributed 65% of Gerdau's consolidated adjusted EBITDA in that quarter, up from 61% the prior year. This financial outperformance underscores the relative weakness of customer bargaining power when demand is this robust.

Conversely, the power dynamic flips significantly in the Brazilian market, especially for standardized, commodity products. Here, customer power is high. The primary pressure comes from intense import competition, which management has repeatedly highlighted. The import penetration rate in the Brazilian market averaged 25% over the first nine months of 2025, a substantial increase from the historical level of around 10%. CEO Gustavo Werneck has even stated that subsidized steel from China is currently the 'biggest player' in the Brazilian steel market. This influx of foreign supply gives local buyers significant alternatives, thereby increasing their leverage over domestic producers like Gerdau S.A.

When looking at specific customer bases, Gerdau S.A. holds a dominant position as the largest long steel supplier to the automotive sector in Brazil, but this customer base is concentrated. For the Specialty Steel division in Brazil, the automotive market-including auto parts manufacturers and assemblers-accounts for 80% of that division's sales. While this concentration implies deep relationships, it also means that a downturn or a major shift in purchasing strategy by a few large automakers can severely impact Gerdau's revenue mix. For standardized long steel products, customers definitely retain the option to switch between large global producers, which is a constant threat, particularly when domestic pricing is pressured by imports.

Here's a quick comparison mapping the customer power across Gerdau's key operational theaters:

The differing market conditions dictate where Gerdau S.A. is choosing to allocate capital. For instance, the 2026 CapEx guidance for Brazil is set at R$4.7 billion, a reduction from the 2025 forecast of R$6 billion, while investment is prioritized in the US. This capital allocation reflects the relative strength of customer demand and pricing power in each region.

Key indicators reinforcing the customer power dynamics include:

• North American shipments up 3.0% Quarter-over-Quarter in Q3 2025.
• Brazilian import penetration reached 25% in the first nine months of 2025.
• Specialty steel automotive sales in Brazil account for 80% of that division's local sales.
• North America contributed 65% of adjusted EBITDA in Q3 2025.
• Gerdau S.A. completed 88% of its 2025 Share Buyback Program.

Gerdau S.A. (GGB) - Porter's Five Forces: Competitive rivalry

Rivalry is extremely high in Brazil, with import penetration averaging 25% in the first nine months of 2025. This influx of foreign steel puts significant pressure on domestic pricing and margins for Gerdau S.A. operations in that region. To be fair, this level of competition is why Gerdau S.A. management suggested that the Brazilian import tariffs should be increased to 35%.

North American rivalry is lower; 50% US Section 232 tariffs protect Gerdau's domestic operations. This trade protection has created a more balanced market environment for Gerdau S.A. in the U.S. and Canada, contrasting sharply with the situation south of the border. The company reported that in the U.S., the reduction in import competition contributed to higher metal spreads.

The company's geographic diversification strategy is crucial, with North America contributing 65% of Q3 2025 EBITDA. This single region's performance is the primary driver of consolidated profitability, offsetting the margin compression felt in Brazil. For context, Gerdau S.A.'s adjusted EBITDA for Q3 2025 was R$2.7 billion, meaning the North American segment contributed approximately R$1.755 billion of that total.

Competition is high with other major global and regional steel producers, such as Nucor Corporation and ArcelorMittal S.A. These companies are consistently ranked among the top global steel producers. For instance, ArcelorMittal S.A. was the second-largest producer globally in 2024, with 65 million metric tons of crude steel poured.

Industry capacity utilization varies significantly by region, driving price wars where utilization is low. You can see this stark difference when you compare the operational metrics for Q3 2025:

The lower rolled steel utilization and the resulting 9.9% EBITDA margin in Brazil clearly indicate the pricing pressure resulting from overcapacity and imports. In contrast, the North American division achieved a robust 19.8% EBITDA margin.

The competitive dynamics in the regions can be summarized by the operational outcomes:

• North America saw EBITDA up 43% year-on-year in Q3 2025.
• Brazil's EBITDA dropped 52% year-on-year in Q3 2025 due to import pressure.
• Gerdau S.A. shipped 1.29 million tonnes in North America versus 1.58 million tonnes in Brazil in Q3 2025.
• North American rolled steel utilization was 84%, while Brazil's was 64%.

The disparity in regional performance shows how trade policy directly impacts Gerdau S.A.'s competitive standing in each market.

Gerdau S.A. (GGB) - Porter's Five Forces: Threat of substitutes

You're analyzing Gerdau S.A.'s competitive landscape, and the threat of substitutes is definitely a nuanced area, especially as material science evolves. Let's break down the hard numbers around what could replace your core products.

Threat is medium for long steel (rebar, beams) used in core construction and infrastructure.

For the core construction and infrastructure segments, where Gerdau S.A. is a major supplier of long steel products like rebar and beams, the threat remains moderate. The overall Long Steel Market was estimated to reach USD 636.7 billion by 2025. Steel remains indispensable for structural integrity in this sector. However, the rising cost environment in 2025 is forcing a look at alternatives.

Substitution risk is rising from alternative materials (e.g., aluminum, advanced composites) in the automotive sector.

The automotive sector presents a more dynamic substitution challenge. Automakers are intensely focused on lightweighting to meet efficiency targets, which directly pits steel against aluminum and composites. The global automotive aluminum market was valued at USD 32.6 billion in 2024 and is projected to hit USD 61.3 billion by 2033, growing at a Compound Annual Growth Rate (CAGR) of 7.3% during the 2025-2033 period. This is a clear headwind, though aluminum's higher manufacturing cost compared to steel has historically been a dampener.

Green steel initiatives are driving demand for recycled steel, which is a core part of Gerdau's mini-mill model.

This is where Gerdau S.A.'s business model offers a built-in defense and even an advantage. Your operations transform millions of tons of recycled scrap into new steel products each year. This scrap-based Electric Arc Furnace (EAF) model inherently supports the 'green steel' trend. For instance, the Selkirk mill alone produces over 300,000 tons of steel annually using this low-carbon method. Furthermore, Gerdau S.A. has set a public goal to reduce its average $\text{CO}_2$ emissions from 0.93 metric tons $\text{CO}_2\text{e}$ per metric ton steel to 0.83 metric tons $\text{CO}_2\text{e}$ by 2031, a 10% reduction. This target emission rate is less than half the 2020 global steel industry average of 1.89 metric tons $\text{CO}_2\text{e}$ per metric ton of steel. To support this, Gerdau announced an investment cycle of R$6 billion with execution scheduled for 2025.

High-strength, lightweight steel alloys help steel maintain market share against substitutes.

Steel is fighting back with innovation, particularly through Advanced High-Strength Steels (AHSS). These specialized grades allow for significant weight reduction without sacrificing safety, which is crucial in the automotive space. A vehicle manufactured using AHSS can achieve over 25% weight savings compared to one using only conventional steel. This innovation helps steel compete against lighter alternatives.

Cost of switching materials is high for large, long-life infrastructure projects.

For large, long-life assets like bridges and high-rise buildings, the initial cost and the long-term risk profile heavily influence material choice. While composite materials in construction saw their market value jump to almost $21.4 billion in 2025 from $18.9 billion in 2024 (a year-on-year growth of almost 12%), the switch is not automatic. The Florida Department of Transportation (FDOT) notes that project managers must perform due diligence to ensure the long-term benefits of Fiber Reinforced Polymer (FRP) outweigh traditional materials on a project-by-project basis. The complexity of design, lack of long-term data for some alternatives, and established engineering standards create a high implicit cost of switching for major infrastructure, which favors established materials like steel.

Here's a quick look at how the automotive material markets are sized, showing the competitive tension:

The threat is clearly higher in the automotive sector due to lightweighting mandates, but Gerdau S.A.'s focus on high-strength steel and its foundation in scrap recycling positions it to manage substitution pressures effectively in both key end-markets.

You should review the capital allocation for Gerdau Next, the division focused on diversifying the portfolio, to see how aggressively they are pursuing non-traditional material opportunities that could further mitigate substitution risk.

Gerdau S.A. (GGB) - Porter's Five Forces: Threat of new entrants

You're analyzing the barriers to entry for a new player trying to break into the steel market dominated by established giants like Gerdau S.A. Honestly, the hurdles are immense, primarily because of the sheer financial muscle required just to get started.

Threat is low due to extremely high capital expenditure (CAPEX) requirements. Consider Gerdau S.A.'s own commitment to staying competitive: their 2026 investment plan is set at R$4.7 billion for maintenance and competitiveness projects, down from R$6.0 billion budgeted for 2025. This level of ongoing capital deployment signals the massive scale of investment needed to even maintain parity, let alone enter the market. To be fair, Gerdau suspended R$2.1 billion of planned investments in Brazil, shifting focus to the US, which itself shows the scale of capital allocation decisions required in this sector.

Significant economies of scale are required to compete with established giants like Gerdau S.A. The Minimum Optimal Scale (MOS) for a conventional integrated steel mill is estimated to be around 6 million tons (6 MT) of steel per year, a volume that dictates a massive initial outlay. Even for the more flexible electric furnace mini-mills, typical output has grown to exceed 1 Mt/yr, with competitive ranges cited between 0.5 to 3.0 Mt/yr. A new entrant would need to target at least this scale to achieve cost competitiveness.

Existing players benefit from strong regulatory protection, especially the 50% US tariffs on imports. Effective June 4, 2025, the US increased Section 232 tariffs on steel articles from 25% ad valorem to 50% ad valorem for most countries, with the UK maintaining a 25% rate. This regulatory moat makes importing finished steel prohibitively expensive for a new competitor looking to serve the US market, forcing them to build local capacity, which circles back to the high CAPEX barrier. In Brazil, the market dynamics are also challenging for newcomers, as the share of imported steel has surged to 22-25% of the domestic market, up from 10% previously, with total imports reaching 6.2 million mt/year.

New entrants face difficulty securing cost-competitive raw material supply chains (scrap/iron ore). Raw material costs can account for 60% to 70% of the final billet cost estimate for mini-steel plants. Established players like Gerdau S.A. have secured positions, such as expanding iron ore output at the Miguel Burnier mine to add 2 million mt/year for third-party sales, and boosting scrap recovery at the Pindamonhangaba plant. A new entrant must secure reliable, cost-effective access to these inputs against incumbents with established sourcing agreements.

Access to efficient distribution channels across the Americas is a major barrier to entry. Gerdau S.A. has a global footprint, including significant operations in North America, which contributed 38.8% of net sales in Q2 2024. Establishing a logistics network capable of moving millions of tons of steel products efficiently across continents, dealing with varying regulations and infrastructure quality, represents a sunk cost and operational complexity that new entrants cannot easily replicate.

Here's a quick look at the scale disparity:

The existing operational structure creates further barriers:

• Brazilian steel industry capacity utilization is currently at 35%.
• Gerdau S.A.'s 2026 CAPEX breakdown allocates R$2.9 billion to Maintenance and R$1.8 billion to Competitiveness.
• Raw material costs can represent 60% to 70% of the final billet cost estimate.

Finance: draft 13-week cash view by Friday.