Trade Focus: Brazilian ore to gain share in China / Steel imports near highs In this report we analyze the detailed breakdown of Brazilian trade figures for the month of August, which was recently reported by the Brazilian Foreign Trade Ministry. Higher iron ore exports channeled to China (Figures 3 and 4): The higher level of Brazilian iron ore exports during August (second-highest level ever at 29.8Mt, +17% m/m) was entirely attributable to higher demand from China. Ore exports to China reached 15.1Mt in August, +50% m/m. Shipments to Europe and Japan were relatively unchanged m/m at 5.5Mt (-7% m/m) and 3.6Mt (+8% m/m), respectively. We expect a slowdown in Chinese crude steel production (and consequently, iron ore demand) over the upcoming months. However, we believe Brazilian miners are well positioned and set to gain market share in China (potentially from India and/or domestic sources). Shipments out of Brazil take, on average, 40-45 days to arrive in China, and should remain at strong levels in September. No signs of flat steel imports easing; Imports up 8% m/m (Figure 7): Flat steel imports amounted to 350kt in August, up 8% m/m. The current figures represent the second-highest figure ever, and should lead to a tough pricing environment for the Brazilian flat steel makers. The flat steel value chain remains overstocked, with the inventory to shipments ratio (I/S) of 4.0x at the distributors’ level (vs. normalized levels of 2.6x). We believe the domestic market is experiencing a structural shift, which should result in lower pricing power going forward. Long steel imports at a new record high (Figure 8): Long steel imports reached a new high at 100kt in August, 60% higher m/m. As a reference, this figure compares to average monthly imports of 25-26kt during 2009/2008. It is important to highlight that these figures exclude long products which are not produced in the country, mainly railway components and some specific tubes. We acknowledge that long steel producers are relatively less threatened by imported material in the short-term, mainly due to: (i) lower coordination of traders; (ii) a more fragmented market; (iii) specification issues; and (iv) distribution channels. Nevertheless, we believe that the long steel pricing premium is also set to compress over the mid/long run. We maintain our relative preference for iron ore miners over steelmakers on a 12- month time frame. Buy Vale, Bradespar (11% discount to NAV) and MMX. Amongst Brazilian steels, CSN is our preferred play on its rising iron ore exposure and earnings outlook.