Brazilian capacity expansion discussed in congress

Brazilian capacity expansion discussed in congress

During the Steel and National Development Congress in Brazil organized by IBS, an evaluation on the current circumstances and projections on Brazilian steel industry and its future was gone through in detail. According to John Lichtenstein, a metals and mining specialist of consultant group Accenture, Brazilian steel companies are in a good position to keep boosting their exports over the next few years. Local mills benefit from a low cost structure, strong demand for unfinished steel and expectations of economic and political stability in Brazil. "Between 1991 and 2001, Brazil's share of total global steel exports fell from 6.4% to 3.2% as companies focused on the expansion of the local market," he said. But helped by a favorable exchange rate in 2002, there was an export push last year and the country increased its share of the global steel market. According to Accenture's analysis, Brazil enjoys one of the world's lowest - if not the lowest - cost structures for producing slabs. The average manufacturing cost for a ton of slabs is US$152. The closest rival is the Ukraine with US$155/ton, far ahead of the USA cost of US$241/ton. High-cost blast furnaces are expected to be shut down in developed countries and more efficient ones forecast for construction in developing nations like Brazil. Accenture forecasts, for example, that the number of blast furnaces in NAFTA countries (USA, Canada and Mexico) will fall from 42 in 2003 to 34 by 2010 with a corresponding increase in slab imports. Besides the high operating costs of such mills in the US, reasons for plant closures in developed countries include high capital costs, limited access to capital, environmental problems and costly or inadequate access to raw materials. On the supply side, the trading relations of Brazilian steel companies are foreseen to be evolving from opportunistic to strategic and integrated. Local mills connected to global groups can take advantage of the commercial relations of their parent company or important shareholder, according to Accenture specialists. Vitoria, Espirito Santo-based flat steelmaker CST, Belo Horizonte-based long steelmaker Belgo-Mineira and Belo Horizonte-based stainless steelmaker Acesita are tied in with Luxembourg-headquartered Arcelor - the world's largest steel group. On the other hand, Brazilian companies might face obstacles in increasing their share of the global steel trade. On one hand strong domestic market growth could curtail exports as mills concentrate on insuring local supplies. Internal demand for steel is forecast to grow 1.1 million ton per year, according to estimates by Brazilian sector association IBS. The best way to perform such capacity expansion in Brazil would be by the Brazilian steel industry and the Government acting in a manner without antagonizing the rest of the world or invoke sanctions on Brazilian exports. Brazilian steel exports to the US already face numerous countervailing duties and antidumping measures. There are several views regarding the proposed funding of expansion by the Brazil's federal development bank BNDES, as same could be considered a government subsidy. On the other hand such action finds defence from some sections in the industry with the example of the US government bailing out pension fund liabilities of bankrupt mills given.