In the line of duty: Colombian steel industry expects new tariffs on imports

China’s dominance of the global steel market, as well as the low prices of its steel exports, have raised alarm bells around the world.

According to the World Steel Association, in 2023 China produced 54% of the world’s steel followed by India with 7%, Japan 5%, and the US and Russia each with 4%.

Last year, Latin America imported around 10Mt of Chinese steel, equivalent to almost 17% of the region's production, according to the Latin American Steel Association (Alacero).

Cheap imports are putting Latin American producers in a bind, to the point that Brazil, Chile and Mexico have imposed extra duties on steel from China. Colombia is now preparing to do the same.

BNamericas spoke about the situation in Colombia with Daniel Rey, who chairs the committee of steel producers of ANDI, the national association of entrepreneurs.

The committee made a commitment with the government of Gustavo Petro to prepare a prefeasibility study for the construction of a flat steel plant in Colombia, a step considered crucial to strengthen reindustrialization, formalize the extraction of metallurgical coal and improve the efficiency and environmental and social standards of clean coke production, the president of mining agency ANM, Alvaro Pardo, said at the beginning of September.

The steel industry in Colombia comprises five companies: Acerías Paz del Río, Diaco and Grupo Siderúrgico Reina, located in the Boyacá region in the center of the country; Ternium, which has steelworks further south in Manizales; and further to the southwest is Sidoc.

Ternium also has a rolling mill in the north of the country, which was opened about four years ago and is currently the most modern in Latin America.

BNamericas: How is the steel industry in Colombia currently?

Rey: Colombia produces between 1.3Mt and 1.4Mt of long steel annually. The industry generates around 50,000 direct and indirect jobs, using scrap reduction technology, with the exception of Paz del Río, which produces steel from reduced iron ore.

At the moment, the industry is basically facing a price problem due to unfair competition and the fall in domestic demand in the construction sector.

Unfair competition implies a distortion in the prices of imported steel, which are between 40% and 42% below the price in reference markets such as Brazil or Mexico, which forces companies in Colombia to lower their prices to levels that do not cover production costs.

A little over a year ago, when the distortion was between 20% and 22%, we asked the government for trade defense measures.

BNamericas: The main concern about low prices is China, but are you also concerned about steel coming from other countries?

Rey: We could say that China is the world's biggest problem, but since it has a dominant position in the market, it affects the behavior of other players.

From Russia and Turkey, we sometimes also receive products at prices below production costs, and also from Peru.

If we talk about rebar, we have problems with Peru and Turkey, and sometimes with Russia. Russia and China are more present in wire rod.

BNamericas: Specifically, what are the safeguards that you’re asking for?

Duties on imports from Peru, and duties on imports from China, Russia, Turkey, Vietnam and India.

We have not received steel from Vietnam or India, but it could happen at any time, because when a player as important as China shows this type of behavior [low prices], it affects the behavior of others, disrupts the market and suddenly steel starts to enter from countries from which it was not expected.

BNamericas: What level of tariffs would you expect for the industry to recover?

Rey: The price distortion is around 40%. We are asking for the WTO consolidated rate, that is, up to 35%, which is the maximum.

Currently the tariff on wire rod is 5% and bars 10%.

In the case of Peru, the tariff would be 14.5%, but with a quota of 29,000t that would enter with zero tariffs because according to the regulations of the Andean Community of Nations (CAN), the trade flow of the last three years must be respected, which is 29,000t per year. From 29,001t it would enter with a tariff of 14.5%.

We expect that safeguard decrees for rebar and low-carbon wire rod will be issued in the coming days or weeks.

BNamericas: What is the reason for the drop in demand for steel that you mentioned?

Rey: The low demand is influenced by the very strong increase in interest rates. Mortgage rates rose to 18% to contain high inflation, when we were coming from rates of a little less than 9%.

The drop in demand was also influenced by a cyclical problem. In 2020, during the COVID-19 pandemic, and in 2021 and 2022, there were record sales of homes and it was logical to see a correction of this trend. By 2023, there were drops of around 50%.

Additionally, there is an issue of loss of consumer confidence, associated with some changes that the government made with housing programs.

I think that in the remainder of this year and the first half of next year we’ll see an improvement as interest rates are falling. However, I believe that a significant recovery will begin to be seen towards the second half of 2025.

BNamericas: President Gustavo Petro wants to build a flat steel plant in Colombia. Has the industry accepted the challenge?

Rey: We will carry out the prefeasibility study for the steel mill in Colombia that President Petro is seeking.

In Colombia there is a flat steel industry that for now only rolls, but does not produce slabs, which are the base, the first product of a flat steel mill.

The objective would be to try to have the entire chain and reach, for example, the aeronautical, household appliance, automobile and shipyard industries, which is why the government speaks of a high value-added industry.

The project to build a flat steel mill is still in its initial stages.

According to the agreement we reached with the government, once the safeguards are signed, we will begin the study.

BNamericas: How long will it take to complete the study and how long will it take to set up the plant?

Rey: For the study we will start with a visit to a flat steel plant in Argentina, as part of an invitation from Ternium, which has a presence not only in Colombia, but throughout Latin America and even in the United States and Europe.

The government has asked us to speed up the study and we will try to have it ready in about four or six months.

BNamericas: What could be the obstacles to completing construction of the plant?

Rey: There could be several reasons, for example, a lack of energy, a lack of necessary resources because scrap is scarce, the availability of iron ore because the iron ore in Colombia is of low quality, and legal security, market issues, among others.

All of this will be determined by the study, as well as the conditions necessary for the project to work, which could be having a tariff policy to protect a nascent industry, signing and accelerating mining contracts that allow the extraction of iron ore, that is, that promote its exploration and exploitation, or the search for an ally, which could be Venezuela, which has very good quality iron ore.