Venezuela's domestic wire rod and rebar prices are moving on an upward trend despite the ravaging effects the global economic crisis has had on the country. The Venezuelan economy has been particularly hard-hit because it is highly dependent on oil exports. Oil prices have declined by over 50 percent from their peak just a year ago, even though they have recovered some ground recently. Inflation remains an unsolved problem and is one of the highest in the world.
The continued rise in Venezuelan long product prices can be explained in part by currency inflation, by government imposed economic policies as well as by the limited amount of imports entering the country.
The Venezuelan government has strict control over its steel market, especially since it re-nationalized Sidor (Siderurgica del Orinoco) a year ago. There are practically no imports of steel products coming into the country and only Sidor is allowed to export material. All of these factors have created a closed market with little competition, giving the mills a lot of pricing power. But the government will intervene when it considers domestic pricing as too high compared to export prices.
There are only a handful of mills in Venezuela that manufacture rebars, though only the products from Sidor and Sidetur (Siderurgica de Turbio S.A.) fulfill international quality standards. Other long product producers such as Siderurgica del Sulia produce rebars in a more limited quality range and will sell them at lower prices. Along with the rest of the world, Venezuelan mills are running at reduced capacities. Sidor reported that its liquid steel production was down 32 percent in April from a year ago. Still, the company has not backed down from its plans to increase the 2009 output to exceed 2008.
Because of the country's insular market conditions, combined with its reduced domestic output and ongoing demand for government-sponsored construction projects, and a high inflation rate, Venezuela seems to be defying the international market trends. While most steel prices around the world are down by at least 50 percent from a year ago, Venezuelan long product prices have risen by about 30 percent during the same period. The muddle in the currency market adds even more confusion. Officially, the Venezuelan bolivar fuerte is pegged to the US dollar at 2.15 but the government is making less money available at this rate and a tolerated "parallel' market was established with a floating bolivar. By mid-June, the Venezuelan currency has dropped to 6.56 to US$1 in this market.
The price tendency for Venezuelan long products will continue to point upward as long as the government controls remain in place and government continues to invest in public works projects as it has been doing in recent years. More construction projects are expected to be launched in the second half of 2009. The government insists that despite the tough economic climate, infrastructure and housing investments remain a top priority. But the steep decline in oil revenues and a weakened global demand for steel will continue to be a challenge to the steel sector and the government project investments in Venezuela.