The Latin American steel industry's "red
alert" on imports of Chinese steel, which grew 35.6 percent to
1.6 million tonnes in the first 10 months of 2007, begs several
questions. The most pressing is why the region's steel
industry, blessed with abundant local raw materials, is unable
to compete effectively in its own backyard?
The region is less vulnerable to external
economic shocks than in the past, due in most cases to reduced
public debt levels and increased international reserves,
according to Latin American economic thinktank Comisión
Económica para América Latina y el Caribe. As
such, one theory gaining ground is that the main threat to
competitive growth doesn't come from the likes of China but
from within the region itself.
Glaring disparities and even squabbles
between the 23 Latin American nations are, we now hear, holding
back the region's overall economic growth and investment
levels. Despite the existence of regional trade groupings such
as the Southern Cone Common Market (Mercosul) and the Andean
Pact, the trend has been to seek national rather than regional
solutions to regional problems such as cost increases and
rising Chinese steel imports. The consequence of this is that
while economic growth since 2003 has averaged 7.5 percent
annually in emerging nations and 9 percent in Asia, Latin
America is lagging behind at 5-percent growth despite its
wealth of raw materials.
What has many potential external investors
and bankers worried are the highly politicized currents now
dividing Latin America. The military dictatorships that
dominated the region from the 1960s to the 1980s have come full
circle in some countries into a rash of populist and indigent
movements, where a kind of socialist tyranny is playing havoc
with the region's overall positive plod forward into democracy.
This is particularly so in Bolivia, Ecuador and Venezuela.
Fears that the rules of the game might be
fast changing have apparently scared off potential foreign
investors in Venezuela's overdue steel capacity expansion
program. The latest delays indicate that even Iran, touted as
one of the new investment partners, might be getting cold feet.
Techint Group, which recognizes the long-term potential and has
already sunk a lot of capital into Venezuela, has decided to
stick it out at steelmaker Siderúrgica del Orinoco CA
despite price controls on both iron ore and steel, which now
distort both domestic market supply and demand.
Brazil, which had been liberalizing its
trade, also seems to be attempting an about-turn, with the
Instituto Brasileiro de Siderúrgia, the nation's steel
institute, lobbying for the restoration of steel import taxes
on 15 common steel products following recent increases in
imports. High local taxes and infrastructure costs mean growing
production and investment costs for Brazilian steelmakers,
particularly as the value of the real is one of the global
currencies to have increased most against the U.S. dollar over
the past two years.
In late 2007, the Petrobras Transporte SA
transport arm of state oil producer Petróleo Brasileiro
SA warned that it might buy 400,000 tonnes of steel plate from
China or South Korea during the next four years because the
Brazilian product is 40 percent more expensive. This is a fair
example of the competitive pressures now facing Brazilian
steel, despite the country being home to what are probably the
world's finest and largest iron ore reserves.
Imports of Chinese steel products and
manufactured steel-containing goods are now virtually holding
the Chilean and Mexican steelmaking industries to ransom, with
anti-dumping cases being prepared in these countries against
flat-rolled products and tube imports, according to iron and
steel trade group Instituto Latinoamericano del Fierro y del
The Latin American steel and mining
industries could present a more competitive front if regional
governments and corporations were to engage in more regional
- If the Bolivians supply Brazil with the
natural gas they previously undertook to supply and stop
harassing Brazilian-owned pig iron and iron ore mining
operations, such as Eike Batista's EBX Group, on the border of
the two countries.
- If the Venezuelan government stops
criticizing Brazilian and Colombian political affairs and the
Brazilians become less nervous about accepting Venezuela as a
full member of Mercosul.
- If Mercosul members Argentina and Uruguay
resume diplomatic relations and find a constructive solution to
pollution on their border by Uruguayan pulp and paper
- If Bolivia and Chile, both associate
Mercosul members, find a solution to their 200-year-old
conflict that saw Chile snatch away Bolivia's access to the
- And if the regional common market groupings
adopt similar currency and pricing policies.
A new brainchild designed to help ease these
rifts-new regional development bank Banco do Sul-was formally
created in December, albeit amid colorful differences of
opinion. Brazilian President Luiz Inácio Lula da Silva
and Venezuelan President Hugo Chavez still haven't agreed on
whether the bank's funds should derive from countries' reserves
or working budgets. Uruguay's President Tabaré Vazquez
declined the invitation to the opening ceremony in Buenos Aires
to avoid meeting Argentine President Cristina Kirchner.
Nonetheless, the seeds for a new forum to fund regional
development projects have been sown.