Slow recovery of steel demand in an uncertain economic scenario

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Despite the crisis caused by the pandemic, the prospects present both challenges and opportunities; the steel industry shows a drop in production, yet consumption indicates a slight recovery.

Alacero - São Paulo, Brazil, August 2020. Latin America is still being affected by the COVID-19 pandemic, presenting slightly more than a quarter of the cases and deaths worldwide. In an attempt to reduce the impact of the health crisis on the economy as much as possible, Latin American countries, each in its own way, are starting to reopen trade and resume activities even with the risk of an increase in the number of infections.

In this context, the steel industry in Latin America has suffered one of the heaviest impacts on production reduction in the whole world. In June, the regional production of crude steel was 6.648 million tons (Mt), 3.6% less than in May. The total production of June 2020 is 29% lower than the same month of 2019 (5,174 Mt).

The world’s total production in June, in turn, fell only 0,3% when compared to May and 6.9% when compared to June 2019. China reported a decrease of 0.8% compared to May but an increase of 4.5% when compared to June 2019.

In Latin America, the total production of the semester was of 25,787 Mt, 19% lower than the same semester in 2019 (31,847 Mt). In comparison, globally, the total fell 5.4% in the semester, a number attenuated by China’s growth of 2.2%.

Consumption in Latin America rose in May (3,910 Mt), reflecting a 6% recovery when compared to April. Despite being 27% lower than May 2019, there was an increase in exports compared to imports which helped to reduce the deficit of the trade balance. Consumption was higher because it is being compared with the very low demand of April, but even so it shows that a slow recovery is taking place – although there is still a very long way to go. The year´s consumption from January to May showed a deficit of 3,686 Mt, 13% lower than the same period of 2019 (total 23,686 Mt).

The biggest recovery in consumption in May was reported in Brazil, with a rise of 20% when compared to April, even though it actually means a drop of 25% when compared to the same month of 2019 and of 13% in the semester’s total. The higher shrink in May was found in Mexico, where consumption fell 14% when compared to April, 23% when compared to May 2019 and 9% in terms of the total consumption between January and May.

“The low demand reflects the dire economic conditions in the region. In this context we see challenges and opportunities for Latin America, such as the possible replacement of Chinese products in the US market due to the trade conflict between the two powers”, said Francisco Leal, Alacero’s General Director.

As to the challenges, Francisco Leal mentioned that they include “continuing to fight against unfair imports, particularly from China, and seeking out support mechanisms together with the governments to strengthen the domestic demand for steel.”

“In 2020, the world economy will report the worst GDP since the post-war, and this prospect does not favor the economies in our region. The challenge is to balance the two concerns (health and economy) that interconnect and feed each other. Achieving a stable balance in this regard is the challenge that the countries face. The two concerns will coexist for a long time, until a solution to the health problem is found”, added Leal.

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