Alacero points to the prospect of a downturn in the steel sector, driven by global inflation and local monetary policy

By Alacero

This is a machine translation of the press release originally published in Portuguese

Data from Alacero, the Latin American Steel Association, show that the sector's growth prospects in Latin America for the end of 2022 and the beginning of 2023 are moderate, given the context of global inflation and contrasting monetary policy, with banks in Latin America tightening its monetary policies.

“The forecast is driven by lower external demand, weakened by high interest rates and falling purchasing power. The world is experiencing an unprecedented inflationary process, widely distributed among countries”, analyzes Alejandro Wagner, executive director of the association that generates data for the sector in the region and acts as a spokesperson for the industry.

Also according to data from Alacero, the slowdown will spread across Latin America, adding the external challenges of the global situation, such as the energy crisis in Europe and the war in Ukraine, to local challenges, such as inflation. The growth forecast for 2023 is low, even higher than expected in China and the United States, the main trading partners in the region.

Of the sectors requiring steel in Latin America, civil construction fell by 1.8% from June to August 2022, while the automotive industry rose by 29.3% from July to September of the same year, mechanical machinery grew 0.8% from June to August 2022 and home use dropped by 13.7% over the same period. Regarding inputs demanded in steel production, oil fell by 0.9%, gas increased by 1% and energy by 0.4%, all data from June to August 2022.

Regarding the sector's performance between January and August 2022, accumulated steel exports increased by 47.3%, totaling 7,740.7 thousand tons. Thus, exports increased by 10.7% in August compared to the previous month. Imports, in turn, suffered a reduction of 12.5% in the accumulated of 8 months of 2022, in relation to the same period of 2021, totaling 16,871.1 thousand tons. In August, the value was 25.4% higher than in July.

Production remains relatively stable, driven by the significant volume of exports. The accumulated result for the first 9 months of the year registered a significant reduction of 4.1% in the production of crude steel, in relation to the same period of the previous year, registering 46,862.5 thousand tons. Rolled products showed a reduction of 3.7% in the same period, with 41,033.8 thousand tons.

What is the scenario in Brazil?

Data from Alacero show that Brazil grew 4.6% in 2021, with an expectation of 2.7% for 2022 and an estimate of 0.6% for 2023. Of the demanding sectors of steel in Brazil, construction shrank by 5.7% % from June to August 2022, while the automotive sector grew by 32% from June to September of the same year, mechanical machinery decreased by 4% from June to August 2022, and domestic use fell by 16.7% in the same period. Regarding inputs demanded in steel production, oil decreased by 1.2%, gas -0.1% and energy by 2.8%, all data from June to August 2022.

As for the medium-term expectations for construction, recovery is expected: the private sector should increase investment next year, in a context of more stable inflation. The automotive sector registers a possible slowdown in the pace of production growth, due to lower local sales and a drop in exports to Argentina and Colombia (the sector may have a surplus of units in stock).

As for mechanical machinery, growth in demand for agricultural machinery is expected. Brazil is on the way to another record harvest of 200 MTn in 2023-2024, which will continue to boost the production of this type of machinery. As for domestic use, the expectation is that the government will promote a policy of income redistribution, stimulating demand and boosting production.