Brazil’s steel industry expects upturn as Bolsonaro takes over
Dec, 03, 2018 Posted by datamarnewsWeek 201849
Brazil’s steel industry is optimistic of an upturn in investments in the second semester of next year, following president-elect Bolsonaro’s intention to eradicate institutionalized corruption as he vowed to do during his election campaign. Although portrayed as a far-right candidate, Bolsonaro is already welcomed by Brazil’s business community for his pro-market policies. The recent demise of Brazil’s steel industry, which saw a 50% drop in demand to 700,000 tons in 2017 compared to 2014, is likely to recover by 10% to 900,000 tons over 2019, YoY. Under the circumstances, Brazil’s steel sector is performing 68% under capacity by producing only 50m tons per annum.
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Brazil metals sector embraces Bolsonaro despite controversies, China stance
London — The Brazilian steel, metals and mining sectors expect an upturn in investments in the country in the second half of 2019, following the inauguration of a new government which has said it aims to finish with a period of institutionalized corruption, representatives of industry associations and the mining sector said this week in Rio de Janeiro.
“A new economic cycle is now beginning,” said Marino Garofani, president of the Brazilian association of metallic construction, ABCEM. “The new government has a new posture of compliance.”
The ABCEM president nonetheless said that while an economic upturn is widely expected, it is still too early to see “concrete plans” that would actually guarantee this.
President-elect Jair Bolsonaro of the Social Liberal Party, known for his support of national conservatism and sometimes compared to US president Donald Trump, is due to take office January 1.
In spite of the former army captain’s sometimes controversial views on, for example, the environment, Brazil’s business community in the main applauds his pro-market policies and his attempts to break with recent corrupt practices in Brazil.
This has already been signaled, according to Marco Polo de Mello Lopes, executive president of Brazilian steelmakers’ association IABr, by the president-elect’s current cabinet appointments, which are not linked to political parties as has typically been the case in Brazil’s recent political history.
Brazil’s Bovespa stock exchange has gained around 10,000 points since it became clear Bolsonaro would be elected. “In principle financial prospects have improved… he has passed a better message to the market,” said Jose Carlos Martins, CEO of Neelix Consulting, active in the mining sector.
This is widely seen as an indication that capital, including foreign funds, may be eyeing a return to investing in the country that was struck by a deep recession between 2014 and 2016, worsened by the gigantic “Car Wash” corruption scandal, involving major companies including Petrobras and construction companies Odebrecht and Camargo Correa.
Bolsonaro has apparently committed to kick-starting the Brazilian economy – expected to grow 1.5% this year after edging into recovery last year from a three-year recession – by signaling investments in the construction and infrastructure sectors as a priority.
This means more spending on roads, urban transportation, ports, airports, oil and mining: according to IABr’s Mello Lopes, 3,300 construction projects in the Brazilian private sector alone have ground to a halt since the recession took hold.
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Negotiations are now taking place between industry associations and representatives of the new government in an attempt to restart some of these projects, including via the “public-private partnership” system of undertaking some major works, and do away with the so-called “pen blackout” – a freeze on signing projects, the steel industry executive said.
Activity levels in Brazil’s construction industry, a key driver of economic growth, have declined 50% since 2014, according to ABCEM’s Garofani. In terms of tonnage, 700,000 mt of steel is expected to be used this year in construction in the country, a similar level to 2017, but just half the 1.4 million mt usage levels in 2014.
“This is likely to grow to 900,000 mt in 2019, all Brazilian steel. Investment in Brazil’s construction sector may grow 10% in 2019, from a low base, but it’s hard to see more than oneyear ahead,” Garofani said.
Garofani and Mello Lopes however indicate that the cost of financing within Brazil is still prohibitively high: interest rates continue higher than in many countries, meaning that an influx of international investment will be essential to get the construction industry – a vital creator of jobs – on its feet again.
One spanner in the works is the perception that Bolsonaro is not keen on accepting Chinese investment capital, for political reasons. This is despite the fact that due partially to US protectionism, China in recent years has become Brazil’s biggest trade partner, an avid consumer of Brazilian iron ore, soybeans, meat and corn, as well as a supplier of cheap steel.
Brazil has so far chosen not to impose antidumping tariffs on the bulk of its Chinese steel imports because maintaining a firm trade relationship with the Asian giant was considered by the former Workers Party government to be in the public interest, according to IABr.
With the Brazilian steel sector currently working at just 68% of its productive capacity of around 50 million mt/year, eyes will be on the new government to see if its stance on steel imports hardens.
“We could reach a steel capacity working rate of 75% if the economy upturns,” Mello Lopes said.
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