Latin America shows signs of a slow recovery in steel production and consumption
The demand has been boosted by a faster recovery in the construction industry
Alacero - Sao Paulo, Brazil, September 2020. Latin America is one of the regions most affected by the COVID-19 pandemic, which resulted in a severe economic crisis. The countries in the region are offering tax incentives according to their conditions in order to reactivate their economies and restore at least part of the jobs lost. Despite some positive signs, there is a long road ahead to achieve normality again.
In this context of gradual recovery, the raw steel production numbers for Latin America in July maintained a tendency to improve, reaching 4.450 million tons (Mt), 20% more than in the previous month (June 2020). However, this total stayed 9% below the amount reported in July 2019.
The three main suppliers, Mexico, Brazil and Argentina, registered an increase of 700 thousand tons when compared to June. As for rolled products, long steel products showed an improvement of 17% and flat products 3%. On the other hand, the production of seamless tubes is still low, 26% less than in the previous month, and 69% less when compared to July 2019, due to the crisis suffered by the energy sector.
The Latin American trade balance during the second quarter fell 21% when compared to the first quarter of 2020, dropping from 15.641 Mt to 12.410 Mt. However, consumption increased 6% when compared to last month, reaching 4.368 Mt in June; but it was 16% lower than in the same month in 2019 (5,187 Mt).
Imports represented 39% of the consumption during the second quarter, against 36% in the previous quarter. This is one of the main risks that the Latin American industry faces, especially considering that the products from China and other Asian countries arrive at unfair trading conditions. As such, Alacero reinforces its call to the local governments to rise to this challenge. According to a new study conducted by Alacero, these asymmetries represent danger to the supply cha-ins and therefore jeopardize the future of Latin American industry, considering that about 60 jobs are lost for every US$ 1 million worth of imports of steel manufactured products.
The exports have been maintained at 16% of production in the first half of this year. The increase of exports and decrease of imports between May and June in Mexico may be a positive sign regarding the market expectations related to the United States’ recovery.
In Brazil, the economy started to get back on track and demand has been resumed, and this has contributed to the reacti-vation of the industry’s blast furnaces after four months of downtime. But Peru has already imported 7% more than in the same period last year and exported 41% less, which represents a great risk and it is a result of the free importation policy adopted during the quarantine caused by Covid-19, restricting production.
Rebound of construction industry contributes to greater demand
In Brazil the V-shaped recovery is greatly due to the rebound of the construction sector, both because of the financial sup-port and the diversification of the sales of the producers through e-commerce. The Construction Confidence Index (CCI), developed by Fundação Getúlio Vargas - FGV recuperated 82% of the losses reported between March and April 2020 and the real estate investment funds also yielded more compared to other financial assets.
In Mexico, the production value of the construction companies grew 2.4% in real terms in July when compared to the previous month. In Argentina, the construction sector shows signs of partial recovery as it relaxes the quarantine rules. In Colombia, measures are being taken to resume activities, but this process will be gradual.
“July’s numbers indicate that the construction sector is recovering faster and that the investment in infrastructure is one of the drivers of economic recovery, considering that this is a sector that directly influences a large chain of other industries and jobs. In addition, it supports dignifying conditions to the whole of society, such as housing, sanitation and hospitals”, said Francisco Leal, Alacero’s General Director. ••