Steel distributors see excess supply in Brazil, prices likely to remain low

Brazil’s steel sales fell in June, both month-on-month and year-on-year, and the industry body representing the sector reduced its year-round forecast on Thursday, July 20, estimating that Brazilian steel mills are likely to remain under pressure from strong imports until the end of the year.

Brazil’s steel distributors sold 284,600 tonnes of flat steel in June, down 14% from May and 6% from the same month in 2022, for a year-on-year decline of 0.4%, according to the National Institute of Steel Distributors (INDA).

“As a result, our previous forecast of growth of 1.5% to 2% this year has been changed to a decline of 1.5% to 2%,” said INDA President Carlos Loureiro in a presentation to journalists. In 2022, the sector’s sales were 3.73 million tonnes.

This week, Aço Brasil, the industry body representing steel mills in the country, also cut its projections for the sector this year, citing a weak domestic demand scenario and strong imports.

According to Loureiro, imported steel products are currently about 30% cheaper than steel produced in Brazil. The ratio is called the “premium” by the steel industry. Historically, the premium considered ideal for the sector to discourage imports is close to 10%.

“We are seeing strong resistance from Brazilian steel mills to granting additional price discounts,” said Loureiro, citing the current discussion on steel prices with steel mills that supply inputs to car manufacturers with six-month contracts.

The chart below shows Brazil’s flat steel imports measured in TEUs between Jan 2019 and May 2023. The data is from DataLiner.

Flat steel imports | Jan 2019 – May 2023 | TEU

Source: DataLiner (click here to request a demo)

Steel distributors ended the first half of the year with a volume of 850,000 tonnes of material in stock, equivalent to three months of sales, a level considered high and which, according to Loureiro, requires attention to prevent it from increasing in the current environment of high volatility in steel prices.

While Brazilian steel producers, such as Usiminas, are preparing to re-heat blast furnaces that have been idle in recent months for equipment repairs, Loureiro sees a picture of excess supply.

“We already have excess capacity (in steel production) in Brazil today. The big problem is what to do with it? Try to export at lower prices? The mills are in a tight spot,” said INDA President Loureiro.

According to him, about 200,000 tonnes of material are still not internalized in Brazil’s main port of entry for imported steel, São Francisco do Sul, and therefore outside the sector’s statistics. “There are more than 100,000 tonnes on ships waiting for warehouse space,” Loureiro said.

In the first half of the year, Brazilflat steel imports grew 29.4% to 1.05 million tonnes, according to INDA data, with June showing a jump of about 75% over a year earlier.

Loureiro said that the main steel-consuming sectors, including car manufacturers and machinery and equipment manufacturers, are revising their performance expectations for the year downward, which indicates pessimism about steel sales in the second half of the year.

“With a (possible) fall in interest rates, it may be possible to heat up consumption, but this has its own dynamics and is not something that happens overnight. There is no chance of growth in steel consumption in Brazil this year,” said INDA President Loureiro.

Source: Notícias Agrícolas

To read the original report, see: https://www.noticiasagricolas.com.br/noticias/politica-economia/355045-distribuidores-de-aco-plano-reduzem-previsao-e-veem-importacoes-elevadas-ate-fim-do-ano.html

Sharing is caring!