CARACAS, Venezuela Venezuelas steel industry and investors are hoping interim president Nicolás Maduro will bring reforms to the sector after the policies of his predecessor, Hugo Chávez, overturned a once largely private and highly profitable sector, according to key industry figures.
"The disaster of the industry is a combination of policy and mismanagement," said Robert Bottome, director of the Caracas, Venezuela-based VenEconomy Publications Group.
But with Maduro now in power and expected to create his own political base by winning a presidential election on April 14, Bottome is hoping he will reform the steel sector.
"We see the opportunity," he told AMM sister publication Steel First. "Given the situation, (Maduro) may be inclined to do something sensible."
Venezuela once reigned as one of Latin Americas largest steel producers, with output peaking in 2007 at 5 million tonnes of liquid steel, according to Latin American steel association Alacero. However, the industry took a turn in recent years with statistics showing production plummeting by 50 percent to 2.5 million tonnes in 2012.
The slump, analysts say, stems from the May 2008 renationalization of Siderúrgica del Orinoco CA (Sidor), the countrys largest steel enterprise. Despite having an annual installed capacity of more than 4 million tonnes of liquid steel, Sidors output dropped to historic lows of 1.7 million tonnes in 2012, less than half its output before the state takeover.
"We have never seen a nationalized, government-owned steel company thrive," said David Phelps, president of the American Institute for International Steel.
Pointing to previous examples in Western Europe, Canada, Mexico and Brazil, Phelps said that takeovers and state ventures produce more problems than profits. Compounding these challenges, price controls and policies set forth by the late Chávez have further sapped the Venezuelan steel sectors surpluses and earnings.
Since 2006, the Chávez administration, which has a tradition of setting price controls, has frozen the price of rebar as part of its efforts to solve the countrys housing crisis. Current estimates indicate a tonne of steel rods from Sidor sells domestically for about half the price it would otherwise fetch on international markets.
This disparity, economists said, has crippled production: Sidors rebar output alone dwindled by 31.9 percent to 217,000 tonnes in 2012 from 319,000 tonnes in 2011. This has spelled disaster for its and other steel companys coffers as even private producers have been forced to comply with the government-regulated prices.
"The drop in the international price of steel makes it much more difficult for Sidor to subsidize the losses the company suffers in the domestic market with regulated prices," said Venezuelan commodities expert Francisco Monaldi, an economics professor at Harvard University.
With the countrys exports having eroded some 63 percent since Sidors nationalizationfrom 1.06 million tonnes of finished steel products in 2008 to 392,000 tonnes in 2012the consensus is that the steelmaker has long been operating in the red.
Despite the Venezuelan governments effort to increase steel rod imports to offset flagging domestic output, industry officials say the scarcity has spawned black market rebar "mafias" in the country as regulated steel rods can be flipped on local markets for as much as five times their retail price. As the majority of steel rods were siphoned off to fulfill Chávezs campaign promise of building 350,000 homes in 2011-12, private construction projects have been crippled by inflated prices and shortages, sources said.
"The only way to improve the financial situation of the steel sector is to raise the price of rebar to more reasonable levels," Monaldi said.
This year, Sidor has said it hopes to produce more than 4 million tonnes of liquid steel. However, "in the first two months of 2013, the company has only produced about 300,000 tonnes of liquid steel. (From these numbers) the projection were seeing does not indicate theyll reach their goal," a spokesman for Venezuelas Mining and Metallurgy Industry Association said.
A version of this article was first published by AMM sister publication Steel First.