Capacity expansion plan in Brazilian steel industry

Capacity expansion plan in Brazilian steel industry

After the recently elected center-left government in Brazil mentioned its belief that a consolidated domestic steel industry would become more competitive in the international markets, Brazil's state owned national social and economic development bank BNDES, is ready to support Brazilian steel producers by providing them with one-third of the funds they need to expand their capacity. Brazilian producers are currently running at full capacity, however apparently a capacity expansion is necessary, as they are facing difficulties to meet both the domestic and export demand under the current conditions. A planned capacity increase to be carried out within three years is considered to take the annual crude steel capacity of the country up to 38 million tons from the present level of 33 million tons. This current output level makes the country the 8th biggest steelmaker worldwide. Brazil exports one-third of this output since its privatisation at the last decade. BNDES is considering to effect funding for this capacity increase in a similar way to that introduced in the nineties' privatisation where it supplied part of the $12 billion required. BNDES is also willing to provide support to the consolidation of the Brazilian steel industry rather than financing individual companies. The bank is at the moment developing theoretical studies on possible mergers, however, is not taking an active role in such consolidations, waiting for companies to submit their proposals instead. Also the Brazilian producers buying steel rolling plants abroad to produce value added products from their domestically produced slabs is seen as a working solution by BNDES. Such action would allow Brazilian steelmakers get around trade barriers of other markets. In line with this strategy, Gerdau and CSN already have such plants in the US. China is considered as another target for such actions and exports. An investment of around $4 billion is required for a capacity increase covering the plans by CST, CSN, Gerdau and Belgo Mineria.