SAO PAULO, Brazil Steel imports are a
recent trend for Brazil, but volumes have been growing so
relentlessly over the past few years that they are by far the
main cause of apprehension among local steelmakers.
Brazilian government figures show that imports of flat
carbon steel products have increased fivefold from some 275,000
tonnes in 2005 to 470,000 tonnes in 2006, 865,000 tonnes in
2007 and 1.37 million tonnes last year. And in the first half
of this year the volume reached a surprisingly high 1.88
million tonnes, according to the Brazilian Ministry of Foreign
Trade, representing nearly 25 percent of the 7.8 million tonnes
(including stainless flat products) produced by local mills in
the same period.
Data compiled by the Brazilian steel institute, Instituto
Aço Brasil (IABr), shows even more alarming numbers.
Overall steel imports totaled 2.73 million tonnes valued at
$2.4 billion in the first half of this year, up nearly 84
percent by volume and 61 percent by value from the 1.49 million
tonnes valued at $1.48 billion in the same period last year.
IABr expects imports to total some 4.2 million tonnes this
year. For 2009 as a whole, imports reached 2.33 million
tonnes-led by cold-rolled coil (323,869 tonnes), hot-rolled
coil (286,071 tonnes), heavy plate (235,899 tonnes) and hot-dip
galvanized sheet (231,330 tonnes)-valued at $2.8 billion.
The primary reasons for the steep increases are high local
steel prices and the devaluation of the U.S. dollar against the
After years of economic growth in Brazil, improved local
fundamentals and structural changes in the global economic
landscape, the real got stronger. From a peak of 3.95 reais per
U.S. dollar at the end of 2002 and around 2 reais in subsequent
years, the currency now stands at around 1.73 reais per
Initially, the currency fluctuation only affected Brazilian
steel exports, since finished steel imports were irrelevant
considering the size of the domestic market. But without money
flowing in from exports, trading companies were forced to look
for an alternative-imports-and began chasing potential
customers, especially large and medium independent flat steel
distributors. A few years ago only a handful of companies in
the country's southeastern region dared to purchase steel from
the international market, facing a reported risk of retaliation
by local mills, but Brazil now has countless flat steel buyers
closing import deals all over the country.
In terms of pricing, Brazil's domestic steel prices have
been among the highest globally. Until the end of August,
hot-rolled coil for the distribution segment exceeded 2,000
reais ($1,155) per tonne ex-works-nearly double the United
States domestic price of no more than $600 per tonne f.o.b.
mill. The gap is mainly explained by the local market's long
years of isolation, which enabled mills to maintain control of
Long steel products are another issue. Over the past few
years only flat steel products were imported in any relevant
volumes. But since the end of 2009 trading companies in Brazil
have been purchasing more long steel and acting as
intermediates for small, independent distributors. In the case
of rebar-which until recently had strict, discouraging
technical specifications-imports were quite low at 2,906 tonnes
in 2007 and 1,470 tonnes in 2008, according to Ministry of
Foreign Trade figures, but jumped to 28,818 tonnes last year
and reached 72,500 tonnes in the first half of 2010. Rebar
prices in Brazil exceed $1,400 per tonne vs. a little less than
$600 per tonne in the U.S. market.
All of this has prompted mills, especially flat steel
producers, to rethink their sales strategies. Since the
beginning of this year, mills have found it difficult to
implement price increases, and sources at distribution
companies said mills are even offering some discounts to try
A "mini pricing war in the domestic (Brazilian) steel market
is under way, mainly impacting the flat steel segment,"
Barclays Capital Plc said in a report at the end of August.
Inventory levels in the distribution segment, representing some
one-third of domestic sales by flat steel producers, are very
high and mills might experience a destocking phase over the
rest of the year, it added.
"In our view, the Brazilian steel market is facing a
structural change and domestic players will have to adapt to
higher levels of imports going forward," Barclays said,
translating that into "lower pricing power."
Some mills have complained about the alleged dumping of some
steel imports. Luis Fernando Martinez, commercial director at
flat steel producer Cia. Siderúrgica Nacional (CSN),
said in a recent conference call that there was evidence of
dumping and the company was taking part in meetings with the
Brazilian government to address the problem. "CSN is the one
losing the most with the imports," he said.
Meanwhile, other sources said imports are decreasing and
will remain low as prices in the international market gradually
recover over the next few months. Whether they continue to
decline remains to be seen, but right now the only certain
thing is that imports are set to continue causing headaches in
Brazil in the near future. JUAN WEIK