Investor Confidence Returning as Brazil's Steel Industry Heads for Record Year

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). The Brazilian Steel Institute (IBS) is forecasting a 5.2% rise in crude steel output in 2003, compared to production in 2002. If achieved, this will represent a record 31.1 million tons in the year. IBS president Jose Armando Campos told the recent Steel and National development congress in Brasilia that increased production will come from investments in optimizing and modernizing installed capacity. He told the congress that Brazil's steel industry is working at the limit of its capacity to satisfy domestic demand and export growth.

Also speaking at the congress Ricardo Moraes Guidugli, manager of corporate financing at Lloyd's bank, said that commercial credit lines are opening up again with less risk. He said that in 2002 there was no activity at all but that now there is strong demand from the steel sector. This demand is lower than two years ago but still strong, he said.

Investor confidence has increased with initiative started by the new Brazilian president Luiz Inacio Lula da Silva. At the congress, the country's finance minister, Antonio Palocci said that government economic measures have been geared at bringing down the cost of capital for local companies in order to encourage investment.

IBS president Jose Campos has reported that steel sales in the domestic market stood at 5.2 million tons in the four months January to April this year, and that steel exports came to 4.24 million tons. The IBS forecasts steel exports to rise 13% to 13.2 million tons in 2003 and export revenue 10.3% to $3.2 billion. At the same time domestic sales should increase 2.4% to 16.2 million tons, with total consumption on the local market rising to 16.9 million tons. IBS forecasts were based on GDP growth of 2.6%, inflation of 10-12% and an exchange rate of 3.5 to 3.55 reals to the US dollar. Last year the real hit around four to the dollar in a highly volatile atmosphere. Volatility in 2003 has been reduced by 66%.

As the US takes 45% of Brazil's steel exports the industry is keeping a keen eye on signals of a return to healthy growth from the US economy. Finished steel products have already digested antidumping measures and countervailing duties, but they are still wary of knee jerk applications of measures from the US that could damage their export progress.

Sales of flat steel products rose 20.2% to 4.27 million tons through April, which was the best figure for the month over a period of three years. But a current slowdown in civil construction saw steel beam production at 2.51 million tons which was the weakest output for the sector since 1999.

Among a number of new investments, plant enhancements and acquisitions by Brazilian steel companies in 2002/3 the country's newest steel company, Vega do Sul, will see the $420 million galvanizing and cold rolling mill begin production next month with contracts already in place against production targets. The mill, in southeast Brazil's Santa Catarina state is forecasting 80,000 tons of galvanized products in 2003. At the IBS congress the company's president, Patrick Bardet, said that the company was focusing on the automobile sector in Brazil, and In Mercosur (including Argentina, Uruguay and Paraguay).

The mill will make differentiated products of galvanized and cold-rolled steel varying between 0.5 and 2mm thickness. They are targeting a production capacity of 400,000 tons per annum of galvanized steel and 200,000 tons per annum of cold rolled steel by the end of 2004.

Vega do Sul's shareholders are Luxembourg's Arcelor (68.85%); Vitoria, Espirito Santo based flat steelmaker CST (25%) which will provide hot-rolled coils to the new plant; and Spanish steel services group Gestamp (6.15%).

The International Iron and Steel Institute (IISI) report covering 63 countries set 2003 saw the highest ever February world crude steel production figure of 71.1 million tons. This represents a 7.5 increase over February 2002 and a 4.8 million ton decrease since January 2003.

The IISI reports that crude steel production in North America totaled 9.7 million tons in February 2003 showing an increase of 4.7% over the February 2002. But there was a decrease of 878,000 tons in January compared to the same moth in 2002. The region's results rose by 7.6% during the first two months of 2003. Output in the US increased by 4.1% when compared to February 2002 and by 5.3% year-to-date. US production did, however fall by 634,000 tons through March, according to the IISI.