The Brazilian metals industry is on course for sustained recovery and growth as the economy picks upand export markets revive, but steelmakers will face significant over-capacity in the medium term,leading to the delay and cancellation of some projects, according to BMI’s latest Brazil Metals Report.In the first seven months of 2009, Brazilian crude steel output was down 36.7% year-on-year (y-o-y) to13.06mn tonnes. In July, output was down 21.9% y-o-y, but up 28.9% month-on-month (m-o-m) to2.5mn tonnes, with the market showing signs of stability by mid-year. In H109, of the 14 blast furnaces inBrazil, six were placed on maintenance, although four were back online by August. Over the period,Brazilian flat steel sales fell by 22.9% y-o-y to 1.54mn tonnes. Stocks in June were up by 3.1% y-o-y, butdown by 6.3% m-o-m to 848,600 tonnes. Inventories in June were enough for 3.1 months ofconsumption, compared to the historical average of 2.6 months. However, inventories were down fromMarch’s peak of 950,500 tonnes.
According to the Instituto Brasileiro de Siderurgia (Brazil Steel Institute, IBS), flats fell 35.6% y-o-y to5.75mn tonnes in the January-July 2009 period, while longs fell 31.4% to 4.37mn tonnes. Production ofsemis was down 30.5% y-o-y to 2.74mn tonnes. Domestic sales of rolled products fell 38.0% to 8.12mntonnes, with flats down 41.4% to 4.53mn tonnes and longs down 33.2% to 3.59mn tonnes. The domesticmarket for semis fell 57.9% y-o-y to 193,600 tonnes. Although domestic demand declined, theappreciation of the real against the US dollar throughout much of the period led to a 1.9% increase intotal imports to just under 1.68mn tonnes, due in large part to a 24.3% rise in the import of flat productsto around 858,730 tonnes. Imports of semis were up 22.2% to just under 25,280 tonnes. The volume ofBrazilian steel exports fell 28.2% y-o-y to 4.34mn tonnes, while the value of exports declined 46.8% toUS$2.46bn as the price of products on external markets fell and the strong real reduced thecompetitiveness of Brazil’s exports.
BMI forecasts crude steel output at just under 25mn tonnes in 2009 - down 25.8% - based on forecastoutput of 14.5mn tonnes in H209 (down 10.5% y-o-y). With inventories still well above historical levelsand domestic and external markets remaining volatile, we believe that a recovery to 2008 levels in H2 ishighly unlikely. In the construction sector, our 2009 forecasts have been revised downwards in line withthe 15.56% drop in real capital investment growth forecast by BMI’s country risk team. A major part ofthis decline is attributable to the limited access to credit in the country, which is thwarting newinfrastructure projects. On the upside, exports, which traditionally account for 40% of all Brazilian steelproduction, are expected to increase by about 6.2% in 2009 to 9.74mn tonnes, although in terms of valueexports will be 35% lower at US$5.2bn. Apparent crude steel consumption is estimated at 21.26mntonnes, down 26.2% y-o-y, with finished steel consumption declining by a similar amount to 18.79mntonnes.
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