BRAZIL October 08 2013 10:35 PM
SAO PAULO (Scrap Register): Between October 6th and 8th, 2013, worldsteel-47 Congress took place in Sao Paulo, Brazil and gathers the most significant executives of the global steel industry.
Benjamin Baptista Filho President of Alacero, André Gerdao Johannpeter Vice President and Daniel Novegil Director, participated in a panel that focused on Latin America.
Baptista opened the presentations expressing concern for the strong dependence of the Latin American economy on raw materials exports, as their negative consequences become notorious as their prices drop; a fact that can be currently observed after the deceleration of the Chinese demand. In his own words, “This could mean the end of the golden years for Latin America. Hence, industrial sector development is the way to stop the regional dependency on raw materials.”
Regarding the steel industry, Baptista evaluated that, in a context of global overcapacity, regional capacity is under control and has even stagnated since 2010 because of an increase of imports that, in the case of some countries, he described as a real tsunami”.
The fact that concerns him the most is that this increase in imports in dissociated from domestic demand growth. “The situation is worrying. Imports supply 28% of steel domestic demand and almost a quarter of these shipments come from China. Many products arrive to Latin America under unfair trade conditions and complicate the competitive situation of local producers.” In 2013, demand will grow just 1.5%, a much lower figure than a 4% forecasted last April.
In turn, Daniel Novegil focused on the deindustrialization process that marked the last decade in Latin America and on its consequences on regional economies. “Compared to economies such as South Korea or China, where the manufacturing sector represents 30% of the GDP, in Latin America it represents just 15% of the regional GDP.” (figures for year 2012)
“Between 2005 and 2012, metal-mechanical products exports from Latin America to China remained stable, around 4 billion dollars. However, imports from that country to the region multiplied 3.5 times, from 21 billion dollars to 86 billion. Steel imports figures are even more dramatic. Imports grew 17 times between
2005 and 2012”, showed Novegil.
During his presentation, Novegil emphasized the role of investments as the engine that triggers infrastructure improvement and the formation of an industrial base, which in turn make prosperity and social development possible.
Novegil compared Latin American investments growth during the last decade to that of some other economies. Between 2000 and 2012, gross capital formation in China (durable goods and construction investments) incremented its share from 35% to 48.4% of the national GDP. In South Korea, it remained stable at levels of 30%, while in Latin America, never surpassed levels of 20% or 22%.
André Gerdau specifically referred to the challenges of Brazil, host country of the meeting and the largest steel producer of Latin America. Among these challenges, he highlighted tax burden. “If we consider rolled steel production costs before taxes in Brazil, this country is more competitive than Russia, Germany, USA, Turkey and even China. However, when international market taxes are taken into account, Brazilian costs grows 54% and Brazilian competitiveness falls behind all the other countries.”, the executive explained.
He also pointed other threats such as exchange rate, high interest rates, and high energy and transportation costs due to the lack of adequate infrastructure.