Abstract
The Brazilian metals industry will face a sharp contraction in 2009 as
domestic demand plummets and
exports struggle, but ongoing capacity
expansion coupled with a government stimulus package should
ensure a
return to growth in 2010, according to BMI’s Brazil Metals Report.
Brazilian metals producers have a number of competitive advantages: abundant
supply of low-cost, highgrade
raw materials; low-cost labour and energy
resources; and high quality infrastructure. Brazil also has
a large
domestic market with immense growth potential. Low production costs also
ensure that foreign
producers find it hard to compete on the Brazilian
market, giving Brazilian producers a dominant share.
In 2008, Brazilian
crude steel output fell 0.2% year-on-year (y-o-y) to 33.7mn tonnes, with the
large gains
made in the first nine months wiped out by a poor performance
in Q4 as the credit crunch and global
economic crisis gripped Brazil.
Brazil’s auto, machinery and equipment sectors were responsible for
around a third of the 19.8% y-o-y decline in industrial output in Q408. In
2008, steel sales totalled
3.72mn tonnes, up from 3.31mn tonnes in 2007.
Crude steel output in the first two months of 2009 was
3.27mn tonnes, with
flat steel output falling 55.5% y-o-y to 1.13mn tonnes and long steel
production
down 41.3% to 1.02mn tonnes. Apparent domestic consumption
amounted to 1.1mn tonnes and 2.3mn
tonnes in January and February, down
43.6% y-o-y. Combined aluminium output for January and
February was
256,000 tonnes, down 4.5% y-o-y.
Ultimately, growth will depend on the
stimulation of domestic demand, with the Brazilian market
dependent on
local producers for 80% of supply. A recovery in industrial output will depend
on domestic
demand for cars and investment in large industrial and
infrastructural projects. The Brazilian
government’s increased
investments in the country’s growth acceleration plan (PAC) – to
BRL646bn
(US$280bn) from BRL502bn – could significantly benefit
steelmakers, particularly Gerdau.
BMI maintains a bearish outlook for
steel with output forecast to decline 27.6% y-o-y in 2009 to 24.4mn
tonnes, with primary aluminium also set to fall by 25% to 1.25mn tonnes.
Nevertheless, a strong recovery
is expected from 2010 and by 2013 steel
output should reach 40.99mn tonnes (up 22% over 2008) and
aluminium
reaching 2.00mn tonnes (up 20%). Production growth will be assisted by an
increase in both
demand and capacity. Usiminas has begun installing a new
hot rolling mill at the Cubatão plant in São
Paulo and is
expanding the heavy plates rolling mill and the galvanizing facility in
Ipatinga city, which
remains on schedule. The 5mn tonnes per annum (tpa)
Companhia Siderúrgica do Atlântico (CSA) is also
aiming to start
production by the year-end. There are some downside risks to our medium-term
forecasts,
with the credit crunch and the market downturn jeopardising
planned projects. The decision in March by
Vale and China’s Baosteel
to cancel a 5mn tpa steel slab plant has dealt a major blow to growth
plans.
This will be only partly offset by the planned 3mn tpa Companhia
Siderúrgica do Pecém (CSP) steel slab
plant project – a
joint venture between Vale and South Korea’s Dongkuk – which is
scheduled for
completion in 2013. All production from the plant is
expected to be exported. BMI is mindful that the
project could be
postponed or even cancelled. In November 2008, Gerdau also postponed a
US$524mn
investment plan to build a new mill in Argentina.
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