Latin America Steel industry reduces production in response to lower demand

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Latin America Steel industry reduces production in response to lower demand

Steel production, similar to other industrial sectors in the Latin American region, has been affected by the economic crisis induced by Covid-19, registering a 34% drop compared to the same month last year.

The decrease reflects the generalized low demand and interruption of operations in response to the effects of the slow-down. It is estimated that this situation will persevere until the third quarter and will be the norm for the industry in the short term.

Global production decreased 13.5% in April 2020 compared to April 2019, while China ́s production grew 0.2% in the same period. Compared to March 2020, the world production fell 7% and China ́s rose 8%. Unlike Latin America, China resumed its growth after lifting its quarantine and implementing a sizeable economic stimulus. “The risk is that China, which has begun its recovery, will seek to place its surplus via export, as it has been doing, thus generating greater da-mage to the Latin American industry and delaying or restricting its recovery, which will become necessary in the coming months”, alerts Francisco Leal, General Manager of Alacero.

Comparatively, Latin America produced a total of 3.55 million tons (Mt) of raw steel in April, which represents a reduction of 34% compared to the same month last year and of 14% in the year to date production, which reached 18.3 Mt (see picture 1). In April, raw steel production via the BOF route decreased 22% compared to March (3.56 Mt), a figure that had not been seen since 2009.

For the production of rolled steel products, the drop is 32% compared to the same month last year, but in the year to date it is 10%. In April, the effects of the pandemic began to spread; however, the impact has been felt mostly in Argentina and Brazil, with a decrease of 73% and 37%, respectively, compared to April 2019. The volume of rolled steel products for Latin America is -2.9 Mt, something which has not happened since January 2009. In March, the apparent consumption of steel fell 9% compared to the same month of the previous year, and the year to date decrease is 4%. The new consump-tion forecast for the year so far is a reduction of 16.5% (54 Mt).

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In a strategy to balance supply and demand, some plants have shut down the operations of their blast furnaces. In April and May seven BFs were closed due to Covid-19 representing a combined capacity of almost 7 million tons. With this, capacity utilization as of April 2020 within Latin America is at 42% – Brazil (43%), Mexico (60%), Argentina (18%). There is a production capacity of up to 7.9 Mt / month without considering Venezuela. In turn, global consumption has suffered a reduction in capacity utilization. In the United States, capacity utilization is at 54%, CIS and the Middle East are operating at 55%

Latin America ́s comeback will occur differently among its countries, and the region will probably be one of the last to normalize its economic activity. “The Latin American case reflects what is happening in the whole world with the excep-tion of China, which is making a V-shaped recovery”, says Leal.

In view of the economic crisis we are going through, we believe that it is essential for governments and industry to analy-ze and implement strategies to have a robust steel industry, with high integration with its value chains, defense of their domestic markets and first-rate products and services for their customers.

Furthermore, Francisco Leal warns “of the financial risk related to operating the industry at a low capacity utilization for a long time”. Our industry is a capital-intensive and high fixed-cost business that needs to work at 80% of its capacity to ensure a modern and efficient production plant, as well as retention of its human resources”.

Source: Alacero

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