Despite anticipated growth in domestic demand for steel in Brazil, Gerdau, one of the country’s major steelmakers, remains cautious regarding the year to come.
“We already see signs of improvement in the local steel sector. But the question is: when should it come? I think the next six or eight months will continue to be challenging,” said Andre Bier Gerdau Johannpeter, CEO at Gerdau, adding that just a few countries were so affected at the GDP as Brazil.
“Whenever the country’s GDP falls, the industrial GDP falls as well,” he said, citing the industrial GDP decreased 6.2 percent in 2015, year-on-year, as compared to a 3.8 percent decline in the country’s GDP. As for 2016 and 2017, Gerdau assumed a 3.3 percent decrease in the nation’s industrial GDP, but a 1.1 percent increase in the same indicator in the year to come.
Gerdau’s industrial GDP assumptions include data for the civil construction, manufacturing, mineral extraction and electricity, water, gas production and distribution segments. Gerdau estimated that apparent steel consumption in Brazil will decline 36 percent in 2016, reaching 18 million mt.
“The fall in steel consumption was strong. We reached 28 million mt in 2013, but now we’re getting back to levels of 10, 12 years ago,” he said.
Johannpeter said the manufacturing industry in Brazil used to represent 35.9 percent of the country’s GDP in the 1980s, but as of 2015, it accounts for just 11.4 percent the indicator.
Looking at the changes that are needed to restore the steel industry’s competitiveness, Johannpeter said Brazil needs to reduce the cost of capital, eliminate the hidden tax cost in the country’s exports, improve the business environment, ensure investments attraction and fair trade.
“The Chinese have 18-20 percent export subsides. We need the Reintegra [a pay-back export tax program] rate to increase,” he said. Currently, the Reintegra rate is at 0.1 percent, but should rise to 2 percent in 2017.
Johannpeter also welcomed the approval of a constitutional amendment to limit public spending growth for up to 20 years, limitting the annual spending growth to the inflation rate.