Brazilian mills show optimism about H2 market due to new steel import controls

Brazilian steelmakers are optimistic about their production and domestic sales will grow and that steel imports into the country will fall for the rest of 2024, the Brazilian Steel Institute, or IABr, said.

The new optimism comes after the government's June 1 introduction of import controls involving a system of quotas and tariffs, following a surge of 50% in direct import levels in 2023 to 5.02 million mt of products, IABr executives told reporters at a press conference June 18.

The controls are initially set to last for one year and their impact on trade will be monitored by the government's foreign trade department on a monthly basis.

"This is the first time Brazil has introduced an import quotas system," said Jefferson De Paula, IABr board president and CEO of steelmaker ArcelorMittal Brasil. "The agreement [the steel industry has struck with government] is good and we think it will substantially improve the steel market in Brazil."

IABr now forecasts mills in Brazil will produce 32.24 million mt of crude steel in 2024, up 0.7% from 2023, which saw a 6% fall from 2022 output, De Paula said. Capacity working levels, however, continue relatively low, considering the nation's installed crude steel capacity of 51 million mt, he said.

Domestic sales in 2024 are seen growing 2.5% over 2023 levels to 20.02 million mt, while direct imports of products are set to fall 7% to 4.67 million mt.

Brazilian mills' exports are meanwhile seen falling further this year, by 4.2% to 11.22 million mt, following a 1.9% fall in 2023.

IABr expects apparent steel consumption to grow 1% this year to 24.22 million mt, building on 2023's 1.9% growth, which was largely met by imports.

This is a more favorable scenario for the sector than IABr's market forecast of November 2023, except in the export area, De Paula noted.

High import levels persist

In the January-May period, however, Brazil's steel industry still experienced the impact of high import levels, which increased a further 26.4% from the same period in 2023 to 2.31 million mt, according to IABr and government statistics. Crude steel production in the five-month period inched up 0.6% on year to 13.56 million mt, while domestic sales rose 1.9% to 8.32 million mt.

In June, the sector's ICIA confidence index as measured by IABr stood at 49.5 points, slightly below the 50 "neutral" level, indicating a marginal lack of confidence.

Discussions on rebar

The import quota and tariffs system covers 11 product types out of a potential 273 product types, noted Marco Polo de Mello Lopes, IABr executive president.

When the quotas established for the nine product types are filled, 25% import tariffs will be levied on further imports made, he said. The tariffs are in line with those levied on imports into the US, EU, Mexico and some other nations, he noted.

IABr estimates the import control system will stop potential imports of 1.5 million mt of steel products into Brazil in 2024, mainly flat products and wire rod. China is currently the biggest supplier of steel imported into Brazil.

Discussion still continues with the government on potential inclusion of other products under the import control system including rebars, Mello Lopes said.

The import controls may help boost steel consumption within Brazil, according to the IABr executives. Mello Lopes noted that Brazil's steel consumption has stagnated in recent years at low levels by international standards, and in 2023 was at 110.8 kg/inhabitant.

Market growth

Steel consumption in Brazil has grown little in H1, De Paula said. However, 1%-3% growth is now expected for the year due to progress on government housing and infrastructure programs, and some automotive sector growth, he said.

"If the new import controls work the steel sector will maintain its planned investments of Real 100.2 billion ($18.33 billion) for the 2023-2028 period," said Mello Lopes.