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Brazil Metals Report Q3 2009
Business Monitor International, July 2009, Pages: 54
Brazil Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's metals industry.
The Brazilian government’s package of stimulus and trade protection will ameliorate the effects of the financial crisis on the steel industry, but the high value of the real is hampering recovery and the industry is set to witness a sharp fall in output in 2009 followed by a strong recovery thereafter, accord to this latest Brazil Metals Report.
According to the country’s steel institute, IBS, in the first five months of 2009, Brazilian crude steel output fell 40.6% y-o-y to 8.63mn tonnes. Flats fell 43.4% year-on-year (y-o-y) to 3.64mn tonnes in the January-May 2009 period, while longs fell 35.4% to 2.91mn tonnes. Although domestic demand declined, the appreciation of the real against the US dollar led to a 5.6% increase in total imports to just under 928,000 tonnes due in large part to a 21.5% rise in the import of flat products to around 593,000 tonnes. Imports of semis were up 44.4% to just under 22,300 tonnes. In the first five months of 2009, Brazilian primary aluminium output fell 5.6% y-o-y to 644,600 tonnes. Performance varied from producer to producer. Novelis reported a 16.8% y-o-y rise in output in the January-May period to 42,500 tonnes due to a 61.8% rise in production from its Ouro Preto smelter. Albras’s production was largely unchanged during the period at 189,300 tonnes. However, Valesul produced no aluminium in May and its output for the first five months was down 69.7% y-o-y to 10,800 tonnes. Meanwhile, total production at Alcoa’s
Brazilian smelters site fell 11.4% to 135,600 tonnes and BHP Billiton’s production declined 4.8% to 71,800 tonnes. Brazil is preparing to raise tariffs on steel imports, increasing rates of non-taxed products to 12-14% as of June 2009. Usiminas and CSN will benefit the most from the new tariffs, which are applied to hot-rolled coil, cold-rolled coil, plates and alloy bars. The move will affect six types of flat steel, including three types of hot-rolled coil, two types of cold-rolled coil and heavy plate. Usiminas and CSN are the most exposed to domestic steel prices, although ArcelorMittal and Gerdau will also enjoy the benefits of greater trade protection. The taxes will reduce the downward pressure on prices, with flats likely to benefit the most. Overall, the report does not believe trade protectionism will be sufficient to stimulate domestic production and create a revival unless higher levels of growth are achieved in the construction and automotive industries.
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. Despite the stimulus programme, this report maintains a bearish outlook for steel with output forecast to decline 28.8% y-o-y in 2009 to 24mn tonnes. Hot rolled output will fall 28% to 18.51mn tonnes. The government’s stimulus programme should ameliorate the effects of the crisis on the construction industry. The fall in output in rebar and wire rod will be mitigated, falling 22.6% and 22.3% to 2.48mn tonnes and 2.47mn tonnes, respectively. The relatively strong performance reported by Novelis and Albras in H109 has prompted us to revise up our primary aluminium forecast from 1.25mn tonnes to 1.54mn tonnes, a fall of 8% over 2008. Nevertheless, a strong recovery is expected from 2010 and by 2013 crude steel output should reach 40.15mn tonnes (up 19% over 2008) and aluminium reaching 2mn tonnes (up 20%). Production growth will be assisted by an increase in both demand and capacity.
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