Unfair trade and tensions: China´s impacts on Latin America steel trade
The growth of the indirect trade of Chinese steel in Latin America underscores importance of continued investment in local production
Alacero - São Paulo, Brazil, 24 September 2020. The world’s main economies are in recession while the trade tensions between the world´s greatest powers may be heading towards a different stage of the economic crisis unleashed by the appearance of COVID-19 pandemic. The fall of commodity prices, the devaluation of the currencies, the United States’ protectionism and the pressure of China’s unfair prices on local production have contributed to increase the uncertainty in the region.
In 2019, Chinese exports to Latin America related to indirect steel trade grew 3.5%, reaching US$ 49.154 billion. The amount of Chinese steel entering the region rose 3% when compared to 2018, equivalent to some 7 Mt. Considering this context as well as the drive to maintain the industrialization levels of the Latin American steelmaking industry, Alacero advises local governments to impose greater control over the imports, to fight unfair trade. “After the pandemic, the trend is for the world’s steel demand to favor the countries that have enough overcapacity to resume low-cost production. Therefore, we recommend continued investments in infrastructure and consumption of the local production as ways to achieve a greater representation of Latin American steel in regional consumption”, stated Francisco Leal, Alacero’s General-Director.
Brazil and Mexico are the main consumers of indirectly traded Chinese steel, corresponding to 57% of the total value imported by the region. In tons, this represents approximately 45% of the imports. Mexico, despite the low amount of imports of Chinese rolled products, was the main indirect trade market with US $ 17,157 million, a growth of 5.8% compared to 2018. Brazil had an increase of 4.5% in the related expenses, reaching US$ 11.068 billion. The Chinese exports to Latin America of products included in the indirect steel trade reached 7 Mt in 2019. Among the incoming products that arriving in the region were cars and commercial vehicles, in a total of 1.22 Mt, representing the most significant participation in terms of dollar value (US$ 9.454 billion, 19% of the total). On the other hand, the exchange of rolled and derived products between China and Latin America fell in 2019, but in a scenario of regional loss of added value production.
The main destinations of rolled products and derived steel products shipped from China to Latin America were Chile, who received 1.2 Mt (20% of the region’s total), Peru (1.1 Mt, 17%), Central America (1 Mt, 16%) and Brazil (0.8 Mt, 13%). Overall, the region experienced a decrease of 14% in imports. However, the increase in the indirect trade of Chinese products with high steel content to Latin America was not enough to increase the trade deficit. Therefore, the exchange of rolled and derived products between China and Latin America suffered a strong downturn, even though the total steel imports by Latin America from China, which includes rolled products (long steel products, flat steel and seamless tubes) and derived products (wires and welded tubes), reached 0.018 Mt, 56% more than in 2018 (0.012 Mt).
The trade balance of Latin American rolled products, which in 2018 presented a deficit of US$ 5.493 billion, registered a deficit of US$ 4.421 billion in 2019, 20% less due to the reduction of Chinese imports. The trade balance, together with the reindustrialization process, may be attained with the increase of local consumption and expansion of installed capacity.
Countries working together to defend their trade
Imports represented 35% of the region’s consumption in 2019, of which 25% were due to China. This represents a decrease of 11% in the representativeness of Chinese imports in the apparent consumption of the Latin American rolled products. Despite the decline in trading prices, due to the tax incentives given to the industry, China managed to keep a greater flexibility in the trade negotiations at unfair prices.
In 2019, there were 74 active anti-dumping actions regarding the steel industry in Latin America, 14% more than what was previously reported (65), and of these 50 were against China (42 were filed before 2018). This demonstrates the joint efforts of the countries in the region in 2019 to define the Latin American trade defense were steel is concerned. Mexico and Brazil were the countries in Latin America that most filed charges against China in 2019: of the 50 active cases, 18 were filed in Mexico and 18 in Brazil, jointly representing 72% of the total number of claims against China in Latin America. However, it is important to highlight the efforts being made by Colombia to protect its trade borders, going from 3 anti-dumping actions in 2018 to 8 in 2019, which is an increase of 167%.
In a period of global trade uncertainty, Alacero recommends valuing trade between Latin American countries to minimize risks. The best path is to apply the raw material to manufacturing products of added value in the local industry, which requires an increase in the regional production capacity. Studies by the Inter-American Development Bank (IADB) indicate that closing the infrastructure gap in the region would require annual investments of 2.5% of the Latin American GDP (US$ 150 billion) for at least a decade and a half, in sectors related to the production/distribution of energy, transportation, telecommunication and construction. ••
Alacero – Associação Latino-americana do Aço (Latin American Steel Association) – is a civil, non-profit entity that brings together the value chain of Latin American steel to promote the values of regional integration, technological innovation, excellence in human resources, safety at work, corporate responsibility and socio-environmental sustainability. Established in 1959, its members include over 60 manufacturing companies and other businesses related to the steel industry, with a combined annual production of approximately 60 million tons. Alacero is recognized by the UN as a Special Advisory Body.
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