What is the relevance of Brazilian steel products to the economy?

  • 22/10/2019
  • 9 minutes

Could you say what is the relevance of Brazilian steel export? Do our products really have relevance to the world economy? After all, what are the internal and external impacts of those numbers?

Thinking about these and other issues, we decided to prepare this content. Throughout the text, you will find an in-depth overview of the topic and will be able to update yourself on this important aspect of foreign trade. Enjoy!

How does steel export interfere with the national economy?

To address this issue with the necessary depth, we interviewed Luiz Maluza, who is the Commercial Manager at the Wilson Sons Agency’s division. According to him, Brazil currently has a very favorable trade balance in this market.

“We have 29 plants installed and managed by 10 different groups, which are independent. In addition, we have an installed capacity of 50 million tons per year, but we produce about 35 million”, summarizes the expert.

Something between 40% and 50% of this amount is export-oriented: a variation that depends largely on how the condition of the domestic market. Most of the time, the higher the consumption in the country, the lower the exportation indexes, since sales to the domestic steel market are more profitable for the Brazilian industry, that is, if the domestic market goes bad, the exports increase.

What is the relevance of the export of Brazilian steel products to the world economy?

Since Brazil ranks among the leading names in steel exports in the world, it is hardly a secret that these products are relevant to the global economy. According to Maluza, “exports are mainly directed to the South American market”.

Peru, Colombia, Argentina, and Chile are buyers of Brazilian steel, due to its high application quality for the automotive industry, for example. Other countries also consume our steel frequently — such as the United States, Spain, Portugal, and Holland.

However, since 2008, Brazil has been facing a powerful competitor when it comes to exporting: China, the world’s largest steel producer. Because of the large number of factories and surplus labor, China can produce cheaper steel than other producers.

“It is worth remembering that the low cost sometimes bumps in the poor quality of the product. However, in certain applications of this commodity, this factor ends up having no importance for those who buy,” contextualizes the commercial manager.

Another fact that draws attention in this regard is a proposed restriction made by the European Union (EU) in relation to the purchase of steel produced in Brazilian soil. According to an article (in Portuguese) published by Valor Econômico in early 2019, the EU intends to set limits on the entry of steel products. The idea behind the measure is to favor local production and, in a way, represents the market dispute experienced by the sector in recent years.

On the other hand, a survey conducted by the Ministry of Industry, Foreign Trade, and Services (Mdic) on Brazilian exports carried out in the first half of 2018 showed a 38% growth in sales of steel products to the US, as reported by Época Negócios (in Portuguese).

What are the main challenges faced by Brazilian steel exports?

For Maluza, although the country exports something around 18 million tons of steel per year (including steel products and steels contained in miscellaneous goods), some rates affect the competitiveness of the sector as a whole. “The main challenge is taxation in the sector. To keep a steel industry working, we depend on having a whole production chain in action, which must be aligned with what our main global competitors do,” he explains.

This is because, to produce steel, it is necessary to import raw materials such as coal, which have important functions in this type of process, either as fuel or as a reducer. Not only does it allow it to reach the high temperatures required for the fusion of the ore, but it also associates with the oxygen released from the ore, leaving the iron free.

In the next step, the material is transformed into steel from the burning of impurities and additions. The steel, during the solidification process, is deformed and transformed into other products, widely used by the transformation industry, such as:

  • thick and thin plates;
  • coils;
  • profiles;
  • rebar;
  • wires;
  • bars;
  • among others.

“All these stages involve labor, energy costs, and consequent taxation at the municipal, state, and federal levels,” reports Maluza. According to the expert, these factors reduce the industry’s profit margin and contribute to the loss of market for those with the most competitive prices. As cost is cheap and quality does not always come first in the production chain, countries such as China represent a challenge for Brazilian steelmakers.

What is the relation between steel exports and job creation?

Brazil has industrial parks that are major job creators — Volta Redonda (RJ), Pecém (CE), Vitória (ES), Ouro Branco and Ipatinga (both in MG) — as well as the main steel outlets such as Praia Mole (ES) and Pecém (CE).

This fact shows that a productive logic as a whole reaps benefits: from those working in the steel industry to port workers. There are also those who reap indirect advantages from this chain, such as shipowners, port operators, customs brokers, maritime agents, etc. It is estimated that around 300,000 workers are a part of this economic scenario.

What to expect from the future of Brazilian steel exports?

“Competitiveness tends to get tougher, but this can be circumvented with new ideas regarding taxation that reaches the production stages of the steel industry. Thus, we could be able to produce 100% of the installed capacity,” concludes Maluza.

In addition, some initiatives such as export incentives (tax exemption), the modernization of port facilities and infrastructure, and the deployment of state-of-the-art technology for port operations can make a difference by increasing port productivity and the advantage over international competitors in steel exports. That is, much remains to be done and there is still a lot of potential to be explored.

If you enjoyed this article, take a moment to also understand how foreign exchange controls work.