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After strong domestic steel demand in 2021, pushing prices to all-time highs, the Brazilian steel industry is expected to experience some downward pressures in 2022 caused by economic deceleration, full inventories and falling demand from end-users.
“Steel mills benefited [in 2021] from a restocking movement on the distribution side, which is not there anymore,” Daniel Sasson, equity research at Itaú BBA, told S&P Global Platts.
According to him, the expectation is for a slight drop in sales, since the comparison basis is very high after sequential increases of 4% and 19% in 2020 and 2021, respectively.
Moreover, sales may also be affected by an economic growth deceleration, since estimates of gross domestic product for Brazil are hovering around 0.5%, compared with a possible GDP growth in 2021 of nearly 4.5%.
According to Brazilian steel institute Aço Brasil, crude steel production in 2021 increased 14.7% compared with 2020 to 36.03 million mt with the industry operating at 73% of installed capacity. Finished steel domestic shipments totaled 21.97 million mt last year, a 15% jump on year, while apparent consumption increased 23.2% on year to 26.41 million mt.
Much of the market restocking in 2021 was supplied by imports, which totaled 4.97 million mt, an increase of 144.1% from 2020, customs data showed.
However, much of this volume is still to be absorbed by the market, according to sources.
The ships that arrived in November at the southern Sao Francisco do Sul port – the country’s main foreign steel entry door – are mooring late January or early February, traders said.
Mills attempt price hikes in Q1
Nevertheless, Brazilian steel market sentiment has turned up in January, following consecutive downward corrections in H2 2021.
“Automakers have just absorbed a 50%-70% hike in their annual contract prices, while distributors are expected to restock,” one producer said, signaling that increasing steel prices are on the Q1 agenda.
Mills have already announced price hikes for longs products in January and for flats in February. However, the level of absorption is still an unknown.
Despite some import parity on the negative side and an increase in scrap prices, demand remains subdued.
A construction company source confirmed that received offers are 6% above previous ones, but said that he is not willing to buy at this point.
Platts assessed domestic 10 mm rebar at Real 4,500/mt ($812/mt) ex-works, taxes excluded for the week ended Jan.7, stable since mid-December, which is equivalent to a roughly Real 5,900/mt delivered price within Sao Paulo state, after an average freight rate of Real 150/mt and taxes totaling up to 22.38%.
Brazilian 10 mm rebar was at a discount of 8.2% to the Turkish rebar delivered price at Brazilian ports after customs clearance of $870.72/mt earlier this month, according to Platts calculations.
Through 2021, Brazilian rebar prices went up by 16%. After reaching a peak of Real 6,050/mt in mid-June, prices are down by 25% to date.
Brazil’s domestic construction sector for many years was proud of not relying on imports, said construction companies’ group president José Carlos Martins.
“However, that prevented formation of distribution channels linked to imports, and now we see it was a big mistake,” he said on the group’s Jan. 12 podcast.
Martins said that among technical barriers to increase imports are the lack of service centers for the imported goods, but the major impediment is Brazil’s import tariff. “Our main objective as CBIC is to take down further that tariff,” he said.
In November, Brazil temporarily reduced import tariffs on finished steel to 10.8% from 12%, valid until Dec. 31, 2022, after steel-buying segments pressured the economy minister.
On the flat steel side, full inventories and imports made throughout 2021’s second half – still waiting at ports to be internalized – are pressing prices down.
“The market is muted, there are no orders,” said an importer.
“A certain major client is with full inventory for more than three months,” another source said.
Sasson pointed out that prices already fell by double digits in H2 2021. “So any increase to be made going forward will be made on a lower basis,” he said. “As demand is not growing that much and the supply chain is fully inventoried, I see a limited space for increases throughout 2022,” he added.
Moreover, an import parity closer to the 10% premium may also limit further increases.
Falling Chinese prices would also continue pressuring the parity calculation. However, falling international prices may not be reflected in a higher volume of imported products.
“There is a more complex scenario in 2022, with lots of uncertainties,” the trader said, citing presidential elections in Brazil in October and a possible export tax on Chinese products to restrict options.
The context of elections brings uncertainty to growth, analysts said, with a major impact on investments sensitive to times of uncertainty and governmental changes.