China’s economic slowdown could benefit steel in Brazil

The world market is seeing the slowdown in the Chinese economy as problematic since China is the second largest power in the world. However, Brazil can benefit from this, especially concerning steel.

The observation was made at an event of the Institute of Steel Distributors (Inda) since 80% of the steel imported by Brazil comes from China, and the fall in Chinese production can open space for Brazilian distributors.

According to a report from Itaú BBA on the subject, the Institute remains confident in the projection of growth of about 3% in steel sales in the annual comparison because of the resilient demand of the energy and machinery segments.

“Chinese production is not only weakening but may also be limited by the drought and heat waves that are currently hitting the country,” the report points out.

MARGIN AND VOLUME

During the event, Miguel Holmes, Usiminas’ commercial vice president, pointed out that Latin American importers have volumes and lower margins than Chinese steel producers, making them the first to be affected.

“As a result of more limited competition, domestic producers could increase their market share,” said Miguel Holmes from Usiminas.

Carlos Loureiro, president of Inda, believes that sales growth will be driven by several factors, among them the resilience in shipments to the automotive, energy, and machinery sectors, compensating for weaker sales in the white goods segment, in addition to the greater participation of Brazilian distributors, “favored by the current environment of weak demand and margins, which benefit smaller orders that these companies can meet with more flexibility.”

STOCKS

Concerning steel inventories, Inda projects that they will remain stable at around 2.6 months this year. Loureiro emphasized that there should be no changes in this regard, adding that “the difficult evolution of global raw material prices will probably prevent buyers from raising inventory levels.”

CHALLENGING TIMES

On the side of the steelmakers listed on the Stock Exchange, caution took over these companies, which during the second quarter showed a mixed performance, impacted by aspects such as the increase in the cost of operations, the rise in freight prices, and the situation in China itself.

China recently raised its economic stimulus package, adding another CNY 1 trillion (US$146 billion) to stimulate growth and contain the impacts of lockdowns and the crisis in the real estate sector.

PLANS AHEAD IN BRAZIL

The vice-president of Usiminas also pointed out that structural deficits in the vehicle sector and the heating up of civil construction can sustain the growth of the flat steel sector in the future.

Factors such as the increase in the number of inhabitants per car, higher than in mature economies – reduction in the housing deficit, which would heat up civil construction, greater mechanization in agribusiness, and the new regulatory framework for water and sanitation in Brazil may boost demand.

IMPORTS FALLING

The flat steel market has been registering a drop in imports. According to Inda, the sector’s imports fell 4.2% in July compared to June and dropped 47.8% compared to the same month of the previous year, totaling 110,200 tons.

The sales of raw materials made by distributors in Brazil last month totaled 315,300 tons, a rise of 4.1% compared to June and 20.6% in the yearly comparison, according to data from Inda.

According to the Brazil Steel Institute, internal projections reinforce that the upward trend for steel should gain strength, with estimates that the consumption of the product per inhabitant in the country should double within a decade, supported by new investments in infrastructure.

With information from Mais Retorno