Steel and Aluminium

Steelmakers lobby in Brasilia for measures against imports

Aug, 22, 2023 Posted by Gabriel Malheiros

Week 202335

Expressing concerns over the relentless surge in steel imports, the Brazilian steel sector, represented by the Instituto Aço Brasil, has urgently requested a meeting with ministers Geraldo Alckmin of MDIC and Fernando Haddad of Finance. The primary goal of this meeting is to address potential measures that could, at least initially, alleviate the distressing situation faced by the industry.

After a meeting last week to deliberate on the matter, industry representatives, in the wake of a 78% surge in steel imports in July – with China accounting for the majority – deem the reinstatement of import tariffs to their pre-2021 and 2022 reduction levels crucial. These reductions collectively totaled 20%, with most steel products subject to a 12% tariff.

Marco Polo de Mello Lopes, CEO of Aço Brasil, remarks, “The situation becomes more concerning in light of Mexico’s recent decision to elevate tariffs from 15% to 25%, bringing them in line with the USA’s section 232 tariffs imposed by Donald Trump in 2018.” Lopes asserts that with this heightened trade barrier within NAFTA and the safeguards imposed by the European Union, steel from China and other nations might gravitate towards weaker trade defense markets, as exemplified by Brazil’s current 9.6% tariff rate.

Lopes analyzes the landscape by observing, “The domestic market remains feeble, export growth is sluggish, while imports are on the ascent, capitalizing on favorable exchange rates, overseas low prices, and China’s surplus supply.” He indicates that the industry currently operates at approximately 40% idle capacity due to challenges in finding outlets for exports despite this surplus.

Regarding demand and consumption projections, Lopes reports that after two revisions carried out by Aço Brasil in April and July, a more critical estimate has surfaced, projecting an import volume of 4.61 million tons for 2023. By July, this figure had already reached 4.2 million tons. The anticipated share of imports in apparent consumption could near 19% by year-end, slightly below the 20% witnessed in 2010 when the country experienced a GDP growth of over 7%. Lopes remarks, “This doesn’t reflect the current state of our country.”

Breaking down the sources of steel imports until July this year, 52.2% originates from China, and an additional 18% arrives from other Asian countries. Lopes notes, “China’s annualized steel exports have surged from about 40 million tons a few years ago to nearly 100 million.”

When analyzing various types of rolled products, Aço Brasil has identified import penetration rates ranging from 15.8% for cold-rolled coils to 32% for coated (galvanized) products, with a notable 65.3% for aluminum-zinc alloy plates. Stainless plates and coils account for 37% of imports, while seamless tubes represent 42.3%.

See below imports of steel products (hs codes 72-73) into Brazil between Jan 2019 and Jun 2023. The data used to draft the chart below was gathered with DataLiner.

Steel imports into Brazil | Jan 2019 – Jun 2023 | TEU

Source: DataLiner (click here to request a demo)

Lopes attributes China’s drive to find alternative markets, driven by a slowdown in its domestic demand, as the impetus behind maintaining its production pace. China, he points out, continues to be the world’s foremost contributor to excess steel supply, even fostering satellite countries in Asia with various mill projects totaling 66 million tons.

Based on data from Bloomberg and UBS, Chinese steel net shipments (excluding imports) stood at an annual rate of 92 million tons in May. This marked a significant increase from 50 million tons recorded in September 2022. The information strongly indicates that this trend will persist in the current quarter due to high inventories within the mills and their consistent production output.

A month ago, the projected scenario for the Brazilian steel market looked quite different: a 5% reduction in production (as opposed to an earlier projected 2% increase), a 6% decline in local sales (compared to the previous -0.7% forecast), a turnaround from a negative 7.6% in exports to a slight decrease of 0.3%, and a shift in apparent consumption from a 1% rise to a notable 2.6% surge. Import forecasts surged from 2.5% to 25.6%, and the latest revision has added over 400 thousand tons to the estimate.

Steel consumption in Brazil has remained lackluster for more than four decades. In 1980, it stood at 100 kg per capita. The projection for 2023 is just 105.9 kg, which lags far behind countries like Chile, Argentina, and Mexico. Marco Polo de Mello Lopes comments on this situation, “We’ve only seen a 5% growth since 1980, and consumption is heavily concentrated—84%—in three sectors: construction, automotive, and capital goods.” This heavy dependence poses a risk to the sector during economic downturns.

The overarching assessment is that countries around the globe are taking protective measures. The US notably invoked “national security” to impose a 25% tariff, despite facing criticism. While such an approach might be nearly unthinkable for Brazilian trade authorities, Aço Brasil believes that an emergency safeguard, albeit provisional, is a plausible step to secure trade defense in this critical scenario.

Lopes emphasizes the urgency, stating, “There’s an emergency situation that requires government attention.” He clarifies that Brazil operates within the parameters recognized by the World Trade Organization (WTO), including anti-dumping measures, anti-subsidy actions, and safeguards. Any decision must receive backing from Letec (a list of 100 products not requiring Mercosur authorization).

However, there’s an unresolved issue regarding two instances of anti-dumping action and anti-subsidy measures dating back to 2016, targeting hot-rolled flat-rolled steel. Surprisingly, despite findings indicating commercial damage to the domestic product, the Brazilian government did not implement corrective actions. The first case was against materials from Russia and China, while the second pertained solely to China. Both cases had their measures suspended by the Foreign Trade Secretariat, concluding between 2018 and 2022, with the reasoning of “public interest.”

A pertinent query arises regarding whether the so-called “potential gains” effectively reached consumers when they made purchases such as household items, vehicles, machinery, or real estate at lower prices. This raises doubts about whether the primary beneficiaries were importing conglomerates.

Lopes contends that the steel industry holds strategic significance for Brazil, serving as the bedrock for various sectors including machinery, equipment, agricultural tools, and power transmission structures. He underscores the planned annual investments of $2.5 billion and the creation of 130 thousand direct jobs, along with substantial contributions to the production chain. However, consumers continue to express dissatisfaction due to significantly higher prices for local steel when compared to other countries.

Highlighting the need for economic revitalization and systemic competitiveness, Lopes counters arguments by asserting, “Our challenge is not supply-related, but rather the need for stronger domestic demand.”

Source: Valor Econômico

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