RIO DE JANEIRO, BRAZIL – Brazilian steel production increased 11% in January, compared to January last year, representing the highest growth since January 2019. Similarly, domestic sales grew 26% and apparent consumption rose 25%, the highest percentage since March 2015.
The figures were presented yesterday, February 22nd, by Marco Polo de Mello Lopes, CEO of Instituto Aço Brasil (Brazil Steel Institute).
For this year, the institute projects a 6.7% increase in crude steel production, with 33.04 million tons. Domestic sales (5.3%, with 20.2 million tons), exports (9%, 11.7 million tons), imports (9.8%, 2.2 million tons) and apparent consumption (5.8%, 22.4 million tons) are also expected to increase.
Installed capacity utilization, which in January this year reached 70.1%, beating the past five-year average, was considered “extremely important” by the Instituto Aço Brasil’s CEO. However, he cautioned that for the sector to become competitive, capacity utilization must evolve to levels closer to the historical average, between 80% and 85%.
For these positive projections to be achieved, Marco Polo de Mello Lopes lists some priorities for the national steel sector. Firstly, the mass vaccination of the population, with a faster timeline, with continued measures to support the needy; the resumption of the economy with fiscal adjustment, tax and administrative reforms; and the recovery of systemic competitiveness with the reduction of the Brazil cost.
“These are not only assumptions for the steel industry. They are applicable to the processing industry as a whole,” said Lopes.
Tsunami
According to the CEO, the year 2020 was a true “tsunami”, with the novel coronavirus pandemic impacting the whole global economy.
According to him, optimism reigned in early 2020, with a projected increase in the Gross Domestic Product (GDP, the sum of all goods and services produced in the country) of 2.2%; expectations of progress on the tax reform; the SELIC basic interest rate dropping; and the Steel Industry Confidence Index (ICIA) scoring 73.4 points, the highest on record.
With covid-19 emerging in the second half of February, the negative impacts didn’t take long to show, affecting the largest clients of the Brazilian steel industry, said the executive.
Production in the automotive sector dropped 92%, with 5.2 thousand dealerships shutting down. Machinery and equipment production fell 38% and 47% due to companies suspending their activities. As a consequence, the production of steel up to April 2020 decreased by 29%, domestic sales fell 36%, apparent consumption was negative by 33%, the confidence index was reduced to 16.3 points, the lowest of the series, and the use of the installed capacity reached 45.4%, its lowest level on record.
With the relaxation of social isolation measures from May 2020, the granting of emergency aid by the government and the resumption of economic sectors, vehicle production rose by 1,308% between May and December and the production of machinery and equipment increased by 91% over the same period. As a result, the production of crude steel increased 48% in these eight months, as did the domestic sales of rolled products (82%), and apparent consumption (78%). The Steel Industry Confidence Index reached 85.2 points, the highest in the historical series. Capacity utilization rose to 67.3%.
The sector’s overall balance shows that the year 2020 behaved like a “seesaw” for the domestic steel industry, Mello Lopes pointed out. In April, projections suggested that the year would close with an 18.8% drop in steel production, domestic sales would shrink by 17.9% and apparent consumption would suffer a 19.8% decrease. In December, however, the figures showed a 4.9% drop in the production of crude steel, a 2.4% increase in domestic sales, and a 1.2% rise in apparent consumption.
In terms of per capita consumption, that is, per inhabitant, Brazil is still far down in the ranking, losing even to Latin American countries. In 2019, steel consumption in Brazil stood at 99.4 kg per person, rising last year to 99.9 kg. In 2021, the forecast is to reach 104.3 kg per capita. Nevertheless, it will lag behind Chile, which in 2019 had a consumption of 139.2 kg per inhabitant; China (632.9 kg/person) or South Korea (1,039 kg/person).
Commodities
Marco Polo de Mello Lopes explained that the boom in commodities (mineral and agricultural products traded on the international market) observed in the world tends to move towards a greater natural balance. He said that the price of several raw materials remained low for a long time, which discouraged investments in new projects.
The executive believes that today, with mass vaccination against covid-19, particularly in the countries that began the process earlier, there is a prospect of growth.
China
China is a constant concern and threat to the Brazilian steel sector, said the executive. In five years, China increased from a share of between 0.4% and 0.5% of Brazil’s steel imports to 42% in 2019. Marco Polo de Mello Lopes assessed that Brazilian governments have not adopted the rigor they should in the countervailing duty process, correcting duties that had been enforced. “Trade defense should be more effective in favor of Brazilian industry,” he argued.