As domestic demand for steel has declined in the past few years and remains weak until recently, Brazilian mills have turned to the export market to keep up sales and volumes levels, at the same time they try to address a still idle capacity. But according to a McKinsey executive, exports should be “the new normal” for local mills for the next five to 10 years.
“Structurally speaking, the Brazilian steel industry is competitive, thanks to investments made between 2003 and 2014. Most of the investments made targeted the domestic market, but there are some factors limiting competitiveness,” Wieland Gurlit, senior partner and leader of the Latin American energy and materials practice at McKinsey & Company said during the Brazil Steel Congress, held from August 22-23 in Brasilia.
The executive said the “new normal” for Brazilian mills in terms of exports will be about 10 million mt per year, out of which 5 million mt will be made out of “semis” and 5 million mt of rolled products. But to keep up such volumes the local steel industry needs to be competitive, the executive said.
The executive said the “huge need for exports” will be the new normal for the 2018-2022 period, considering domestic market growth will be modest, given the fact that imports, currently at only 8 percent of apparent consumption, will likely to grow, and assuming there will be no major capacity shutdown of HRC/HP mills.
Gurlit said that under the “new normal” for the 2016-2022 period, the relevancy of exports will likely reach 20 to 30 percent of production of finished products.
Gurlit estimated only 50 percent of the country’s steel industry capacity is currently being used to meet the demands of the domestic market. Additionally, “in any realistic scenario,” Brazil will “need to expand exports of semis and finished products in order to reach an acceptable utilization level of 80 percent,” he argued.
In his panel, Gurlit showed some “structural factors” that currently “limit” the competitiveness of the Brazilian steel industry. The executive noted, however, they will always exist in the long term. On the other hand, there are also other “manageable” issues that could be addressed.
“Some of those limitations depend on initiatives from the companies, while others need action from the public sector. Of the latter one, the current tax system penalizing exports of manufactured products like steel is a key factor of concern,” he said.