Brazilian Steel Punching Below Its Weight
Brazilian Steel Industry: Punching Well Below its Weight
No raw material is more important than steel to Brazil’s rapid advance towards developed nation status. The country is the world’s ninth biggest steel producer, with capacity to make 44m tonnes a year, a number that should rise to 77m by 2016.
Much of the steel will be used to build oil and gas infrastructure, including that necessary to develop the huge pre-salt reserves found by Petrobras, the state-controlled oil company.
Some will go to the construction and car making industries. And a significant portion will be set aside to prepare the country for the upcoming World Cup and Olympics.
“The 2014 World Cup, the 2016 Olympics and Petrobras’s gas and oil will together work as a catalyst for the internal market,” says Marco Polo de Mello Lopes, executive president of the Brazil Steel Institute.
“The steel sector has a program to invest $40bn until 2016. If we produce 77m tonnes we will satisfy our internal demand and still export a lot.”
Brazil’s domestic market consumes all the steel produced locally so the country imports 30 to 40 per cent of its needs, Mr Lopes says. The local market is dominated by the five big companies, Arcelor Mittal, Usiminas, Gerdau, CSN and Techint, which together command 92 per cent of sales.
Brazilian steel producers were hit hard by the economic crisis but while both domestic and foreign demand fell, forcing six of the 14 biggest blast furnaces to be turned off, Brazilian companies are tightly run and well structured and they survived.
The country is still better placed than many in developing nations thanks to its relatively robust economy. It was one of the last in and first out of the global crisis and its economy is expected to grow by as much as 6 per cent this year.
Domestic demand has stayed high, buoyed by a booming middle class and a dynamic commodities sector that is working hard to satisfy fast-growing markets such as China.
That promising outlook is prompting even smaller companies to increase production.
“We’re working flat out but demand is still rising,” says Luiz Matanta Chavana, manager at Cia Semeato de Aços, a company that makes steel and parts for agricultural machinery. “Six months ago we had 104 employees, today we have 160. There is space in the market still. I think the future is getting brighter.”
Steel production is slated to grow by 25 per cent this year but it is a drop in the ocean compared with what it could be, executives and analysts agreed.
One of the most oft-repeated statistics at a recent Brazilian Steel Congress conference in São Paulo concerned the country’s startlingly low level of steel use.
Brazilians consume just 100kg of steel per person per year, a number that has barely changed since 1980 and is well below that of peer countries. China, for example, consumed 30kg of steel per person per year 30 years ago and is now using 300kg. Spaniards use 500kg and South Koreans a whopping 1,200kg. Brazilian use has remained stagnant for three decades, largely because the country has not invested enough in infrastructure.
“The level of consumption is well below the country’s potential. It also indicates a lack of infrastructure in the last two decades,” Lakshmi Mittal, CEO of ArcelorMittal, told conference delegates.
Financial Times - 10 Jun 2010
