Shift to steel imports 'urgent' for Brazilian capital goods sector operations: Abimaq

The Brazilian capital goods industry will be able to maintain its focus on exports if it significantly steps up use of imported steel products, thus diversifying supply channels amid costly and short domestic material availability, sources said.

Abimaq, the national association for machinery and equipment, held a meeting in the week ended June 26 between its associates and local representatives of Chinese steelmaker Baosteel (Baowu Group), along with local trading company Comexport, to study steel import opportunities.

More than 260 companies attended the virtual event that carried out simulations of the internalization of steel sheets into Brazil, with foreign material potentially costing 10%-40% less than local steel products.

"Baosteel would be able to meet the companies' needs in terms of volumes, qualities, grades and delivery times," said Abimaq's President José Velloso.

Comexport would be responsible for the logistics and could provide financing and hedging.

The sector, which is responsible for more than 20% of the country's steel consumption, is in a growth path, especially with strong demand for agricultural machines for soybeans and corn production, and for livestock, according to Abimaq.

Nevertheless, high domestic steel prices have been hurting the sector's margins and holding back export opportunities.

"It's urgent that we shift to steel imports and thus guarantee supply at reasonable prices ... as we ended up our efforts trying to negotiate internally," said a source from the sector June 25, recognizing that the imported material will take at least three months to arrive and are subject to changing market conditions. "It's a risk, but at least we will open a new supply channel."

Year to date, Brazilian domestic hot-rolled-coil prices have risen 73.3% and 18.6% in June alone. In the past 12 months, prices shot up 172.4%, according to S&P Global Platts data.

Brazilian HRC was at a premium of 27.4% to the Chinese HRC delivered price at Brazilian ports, after customs clearance, at $1,111.85/mt on the week ended June 26, according to Platts calculation. The foreign exchange was at $1/Real 4.94.

Abimaq said it will not be a part of the negotiations. "It is not a pooled procurement," Velloso said, adding the entity will be neutral, only introducing suppliers' options.

The group already met with trading company Duferco and is set to hold talks with North American-based Leeco Trading in the next days.

"There are companies within the association that already resort on steel imports ... and we believe that more will move onto this option going forward," he added.

The machinery and equipment sector in Brazil had a 3.8% drop in net revenue in April compared with March, but a jump of 72.2% compared with April 2020, when the country's economy was paralyzed by the pandemic.

Machine manufacturers' net revenue totaled Real 16.6 billion ($3.2 billion) in April, according to Abimaq.