Marialuisa: Hello, and welcome to "Metal Movers," a podcast where we discuss market movements and fundamentals in the metals markets. My name is Marialuisa Rincón, and I'm the deputy editor of Argus Scrap Markets. In today's episode, I'm talking to my colleague, Carolina Pulice, a metals reporter based in Sao Paulo, about the steel market in Latin America and the challenges it's expected to face in the next year. Welcome, Carol.
Carolina: Thank you, Marialuisa. It's a pleasure.
Marialuisa: Thanks for being here. So, okay, big congratulations, first of all. You launched Argus's first South American steel price on October 17th. I can personally attest to how hard you've worked on it. So big shouts to you. But let's start by orienting our listeners a little bit. We've got a lot of Latin America to go over in just a few minutes on this podcast. So let's start with Brazil since that's where we launched our prices. What have we got going on there?
Carolina: Yes. So in addition to our coverage of prices and steel market movements in Europe, Asia, and in the United States, we are now expanding our reports to Brazil. We will monitor the prices of hot-rolled coil produced in the country with domestic prices and the product imported from China that arrives there.
Marialuisa: Oh, okay, that's cool. And for the uninitiated, can you explain a little bit about what HRC is, hot-rolled coil?
Carolina: Of course. The HRC is a carbon steel that goes through a rolling process and is called flat steel. Coils can be used in many sectors such as distribution, civil construction, machinery and equipment, auto parts, agricultural machineries, and pipes. In 2023, Brazil produced 4 million tons of HRC but also imported almost 430,000 tons in the same period, more than 3 times the volume of what was imported in 2022, according to data from Argus Brazil. We decided to release prices for both products as assessing the prices of domestic and imported ones will help market participants monitor this volatile and evolving situation. Our prices reports will be weekly and will include a market commentary about the key insights we hear from the market that week.
Marialuisa: Okay, great. So can you tell me a little bit more about the Latin American market as a whole?
Carolina: So I'll start with some overview about Latin America and its situation regarding imported steel. Let me tell you some data about the region. Latin America's average consumption is expected to reach 71.8 million tons this year compared to 73.7 million tons in 2023, according to Latin American industry body Alacero. At the same time, the region is expected to produce 56.3 million tons of crude steel in 2024, down by 3.6% compared to 2023. In contrast, raw steel imports are expected to increase by 3.2% in 2024, reaching 28.6 million tons.
Marialuisa: Okay, so that sounds like a lot just in terms of crude steel production in Brazil and the imports. So where is all of this imported steel coming from?
Carolina: So China is Latin America's main supplier of imported steel, representing one-third of total imports in the region, also according to Alacero. Producers and sources in the region have attributed lower prices for imported steel from Asia Pacific, chiefly China, for undercutting domestic offers. The increase in imported steel goes beyond the sector and could impact 1.4 million direct and indirect jobs across the continent, Alacero told Argus in April. Because of that, several countries across the continent started to take measures to control this flow.
Marialuisa: Yeah, how so? Because I know, you know, Brazil's doing it, but what other countries are looking to take action against these imports?
Carolina: Several countries actually. Let me give you some examples. So Colombia is currently investigating imports of iron or steel wire rod without alloy after it received claims that there was an unfair competition with products coming from other countries. Colombia is currently investigating imports of iron or steel wire rod without alloy after it received claims that there was an unfair competition with products coming from other countries, such as China and Russia. The country is analyzing these claims and could impose additional tariffs for these products soon.
Brazil has also imposed temporary anti-dumping surcharges on steel sheet products coming from China as it aims to protect domestic production. The Executive Management Committee of Brazil's Foreign Trade Chamber ruled it would impose a temporary anti-dumping charge on a variety of steel sheet coming from China. The move comes on the back of an effort from Brazilian steelmakers and the federal government to stop a slough of imported products. In Central America, the most recent action that we reported was on Guatemala probing Chinese galvanized steel. In early October, Guatemala launched an investigation into China dumping these products following unfair competition allegations lodged by domestic steelmakers.
Marialuisa: Yeah. And I mean, in Mexico, the market that I cover, they're also facing pretty big moves as well. Mexico's facing a lot of Asian imports into the market. So in 2023, last year, imports were up 21% from the previous year and they reached about 12.5 million tons, which for a country that produces 20 million tons of steel is a fair amount. Chinese imports were up by 50%. Japan's origin steel was up by 40% and South Korean steel was up by 4.5%. And that coupled with the election cycle in Mexico this year led to a lot of uncertainty that then led to low demand, which has further depressed prices on top of heavy import volumes. But, yeah, I mean, I feel like there's a lot more to be said about Latin America.
Carolina: There is. Actually, I have some other couple of examples in South America.
Marialuisa: Oh, good.
Carolina: Chile, for example, has suffered a considerable loss recently, also on the back of import rise. So it's well-known Steel Mills Siderúrgica Huachipato suspended operations as it was not able to financially operate in Chile anymore. By that time, we talked with market participants who said that because of this suspension, the country would become more reliant on steel imports. And speaking about import increases, Argentina is also set to buy more from abroad. The country's government has recently announced some measures to easy import and that could change the current situation of the country's steelmakers. So in August, the country announced some measures that included lowering import taxes and making changes to the country's regulatory framework to expedite steel imports as it aimed to boost the entry of some materials to the country.
Some market participants also told us that Argentina would be unlikely to import more from China or Brazil, while others bet that this could boost production. So some market participants told us that Argentina could, but was unlikely to import more from China or Brazil. Others said that this whole movement could support local production recovery. This is yet to be seen.
Marialuisa: Gotcha. Okay, so taking all of this into consideration, why are South American countries still considering importing steel from Asia, China specifically?
Carolina: Yeah, that's a tough question. I would say that even with the tradition of producing steel for domestic and foreign markets, the Latin American producers have widely reported significant pressure from imports. It's worth noting that China produced just over 1 billion tons of steel in 2023, making it by far the largest producer of the metal in the world. And with this slowdown of the Chinese domestic market, many local steel mills began to seek foreign markets for their products. The Chinese market, it's worth remembering, represents a third of the entire world's industrial sector, according to data from the Industry Coalition in Brazil.
Marialuisa: Gotcha. So it sounds like it's probably too good of a deal to pass up then?
Carolina: Yeah.
Marialuisa: So, okay, given this scenario, what are the challenges for the market that we can expect to see in the next year?
Carolina: So there are some economic aspects that we should be paying attention to in Latin America. First, the economic growth in the region. Latin America is said to consume less than half of what the world will consume on average in 2023 [inaudible 00:10:27]. Latin America is said to consume less than half of what the world will consume of steel on average in 2024, according to Alacero. The industry body also said that the global volatility and a lower production are some of the challenges for the sector in Latin America next year. And by the way, I think we should also keep an eye on the third element, Donald Trump and the U.S.
Marialuisa: It's well known, Trump, during his campaign mentioned that he wanted to raise tariffs on imported goods into the U.S. But even before Trump's campaign for the 2024 election, there's been a lot of pushback from the U.S. steel industry to Mexican steel, for example. So, specifically, Mexican steel has found itself to be the target of maybe the reimposition of total 232 tariffs, which are some tariffs that were imposed by Donald Trump in 2018. A couple of years ago, some lawmakers got together. They're saying, "Hey, cheap Mexican steel is flooding the U.S. steel industry and it's causing material harm." That has kind of piped down recently, but we're, you know, waiting to see, I guess, what's going to happen when Trump actually takes office in January.
And the Mexican steel market as a whole, it's expected to grow by 25% of production on top of that 20 million tons that it already produces. And 2 big expansions I want to highlight are Deacero's $1 billion investment and a 2.6 million ton per year Slab Mill in Pesquería, Nuevo León, both of which were kind of marketed as being able to take advantage of the USMCA agreements, you know, with the free trade kind of assumed as part of the construction of these mills. So it'll be interesting to see not just, I guess, for the U.S. steel industry, which is a whole other podcast, but for Mexico and southward of that, because Mexico isn't the only Latin American country that sends steel into the U.S., right? So, yeah, Donald Trump is definitely something we will be keeping an eye on. But, yeah, we shall see.
Thank you so much for joining, Carolina.
Carolina: Thank you, Maria.
Marialuisa: You can find this and all the other episodes of "Metal Movers" at https://url.uk.m.mimecastprotect.com/s/DovuCMw5LTg3YAOsPFVH81try?domain=argusmedia.com or wherever you get your podcast. Visit our landing page to follow the events that affect global commodities markets and understand their developments in Brazil and Latin America. We'll be back soon with another edition of "Metal Movers." Bye.
