The steel industry in Brazil, the ninth-largest in the world, is facing a better picture this semester, with demand at its highest level in eight years. There are companies already announcing investments in expansion and others reopening factories that had been idle since 2014. The problems caused by the covid-19 pandemic, which led to the shutdown of furnaces, blast furnaces and product lines, were overcome.
“Supply is normalized, with steelmakers producing at a higher rate than that before the start of the pandemic. In an interview with Valor, the use of installed capacity in the sector is at 73.5%”, Marco Polo de Mello Lopes, president of Instituto Aço Brasil, which represents steelmakers.
According to Mr. Lopes, the sector has plans to invest $8 billion within five years to meet the expansion of consumption in the country.
Last week, the Gerdau group announced investments of R$6 million in plants in Minas Gerais. Two months ago, the group announced the reactivation of a unit in Paraná and another special steels unit in São Paulo. Usiminas is studying installing a galvanized steel line in Cubatão (São Paulo). The Mexican group Simec said it plans to double the rebar and wire rod plant in Pindamonhangaba (São Paulo) and is expanding the one in Cariacica (Espírito Santo) — a total of $350 million. In March, ArcelorMittal resumed a $350 million expansion project in Santa Catarina and in January it will start operations in a long steel rolling mill in João Monlevade (Minas Gerais), ready since 2015, but idle due to lack of market.
Valor: After more than a year of pandemic, has the steel industry in the country already overcome the problem of supplying the consumption chain?
Marco Polo de Mello Lopes: In April of last year, at the height of the demand crisis caused by the necessary social isolation to face the pandemic, the steel sector operated with 45% of its installed capacity. Orders for steel products by civil construction, machinery and equipment and automotive sectors had a sharp drop at that time. These three sectors represent 82.2% of consumption in Brazil. Fortunately, from May 2020 there was a vigorous recovery in demand and, currently, the sector operates with 73.5% of the installed capacity. Supply is normalized, with steelmakers producing at a higher rate than that seen in the period before the start of the covid-19 pandemic in the country.
Valor: How are production, sales in the domestic market and apparent consumption of steel in the country?
Lopes: The first half was positive for the sector. Production expanded 24% compared to the same period in 2020. Domestic sales reached 12.1 million tonnes, an increase of 43.9%. The numbers show a fully supplied market, with apparent consumption of 14 million tonnes in six months — an increase of 48.9% compared to the same period in 2020.
Valor: The industry has revised upwards the numbers for 2021. What was the reason for this decision?
Lopes: Steel production is expected to grow 14% (35.8 million tonnes), while sales should rise 18.5% (23.1 million) and apparent consumption, 24.1%, with 26.6 million tonnes. The strong growth projected for internal sales, added to the expectations of investments in infrastructure, indicates a path of recovery. If it materializes, crude steel production will be the largest in history. Apparent consumption and internal sales, the largest since 2013.
Valor: The construction and equipment sectors are still complaining about the lack of steel and rising prices.
Lopes: The Brazilian steel industry is serving its customers in volumes above those verified before the pandemic, when there were no complaints regarding supply or price. The imbalance that occurred in the chain as a whole due to the strong recovery in demand, together with the replacement of stocks and even the creation of speculative or defensive stocks against market volatility, has already been solved. If there is still a problem in the market, it is a one-off one.
Valor: Why have steel prices soared in the last year?
Lopes: Price volatility was caused by the commodity boom in the world. Almost all inputs and raw materials in the sector increased in prices, causing a strong impact on production costs in the steel industry. Iron ore and scrap, strategic raw materials, for example, had their prices increased from January 2020 to June 2021 by 172.7% and 157.7%, respectively. This phenomenon occurred all over the world. In Brazil, it was no different.
Valor: The price of rebar is pointed out as the one with the greatest weight in the construction materials basket.
Lopes: This has been the narrative of some civil construction representatives, but, in fact, steel is the seventh item in the overall sales value of this sector, with only 5% of the property’s sales value, according to information from various entities, among them the Construction Industry Union in São Paulo (SINDUSCON-SP). Contrary to what has been propagated, that the price of steel would be preventing its growth, the reality is quite different. Property launches grew 167.5% from January to May; sales, 53.2%. The sector had a record for job creation in a year and real estate financing rose 160% from January to May.
Valor: Did steel mills shut down blast furnaces and rolling mills aiming price speculation?
Lopes: All the equipment that was shut down at the beginning of the pandemic due to absolute lack of demand was back in operation as soon as the orders resumed. With higher demand, the companies drastically reduced exports, giving priority to domestic sales. Already in June 2020, they were higher than in January of that year, before the pandemic. It doesn’t make sense that the Brazilian Chamber for the Construction Industry (CBIC), in September of 2020, made a notification to the Ministry of Economy saying that steel companies were delaying the re-starting of blast furnaces so to elevate exports exponentially and reduce supply in order to raise prices in the domestic market. This is not true.
Valor: What about the request to reduce taxes on imports for some time until supply in the country was balanced?
Lopes: It does not make any sense. Imports are being carried out normally, reflecting the free market conditions. In the first half of 2021, more than 1.9 million tonnes of laminated steel products were imported. There is no exceptional situation in the market that justifies an extreme decision to reduce the importation rates of steel products. CBIC celebrated and widely made known the arrival, in early July, of 20,000 tonnes of rebar, imported in partnership with a cooperative, which proves the viability of imports without the need for artificial measures. Prices have indeed risen, but not due to speculation, but rather by the increase in prices of raw materials and inputs used in steel production.
Valor: Brazil’s per capita consumption of steel has been stuck at 100 kilos per capita per year for decades. Other countries have evolved. What is the reason for this gap?
Lopes: GDP and steel consumption go together. They are inseparable. The fact that steel consumption per capita has remained at the same level for years shows that the country has been moving sideways in recent decades. We understand that the low investment in infrastructure by the various governments is one of the reasons why the country has not had sustained economic growth. China is an example of a country with a high degree of investment in infrastructure that has driven economic growth continuously. That country has increased the amount of per capita consumption of steel products from 32 kg/inhabitant in 1980 to 691 kg/per capita in 2020. The world average per capita consumption went from 128 kg/h to 227 kg/h in the same period.
Valor: The sector has held talks with the federal government. What are the demands?
Lopes: The Brazilian steel industry advocates and works for the resumption of sustained economic growth, the recovery of the industry’s systemic competitiveness and a trade opening in tune with the reduction of the so-called Brazil Cost. We have been working on this agenda together with the CNI, the organizations that make up the Industry Coalition, the government, and Congress. The priority items of this agenda are Brazil, Tax Reform and reduction of the Brazil Cost.
Valor: Which economic indicators will the sector work with in 2021?
Lopes: There is no unanimity regarding these forecasts, but in general the sector follows the market forecasts – dollar at R$5.10, inflation at 6% and GDP above 5%.
Valor: What are the main stumbling blocks for the Brazilian economy and the transformation industry?
Lopes: At the moment, the great challenge is the advancement of tax reform due to the various interests that exist in the country. For the industry, it is extremely crucial to advance in the approval of a broad reform that effectively ends the accumulation of taxes, unburdens investments and brings justice through the balance of the inter-sectorial tax burden. Its approval is a priority.
Source: Valor international