Brazil's apparent steel consumption seen returning to 2007 levels

In what it calls the worst crisis in its history, Brazil's steel industry association IABr said it expects the country's apparent steel consumption to reach 18.2Mt this year, down 14.4% compared with 2015, and a level last seen in 2007.

The association has also revised down crude steel production forecasts - it expects output to fall 6.8% to 32.9Mt this year, and domestic sales are expected to reach 16.4Mt, a 10% drop compared with 2015.

"The figures reflect the convergence of cyclical and structural factors. In the current economic cycle, Brazil's political and economic environment was crucial to make steel-consuming sectors, namely, automotive, construction, and machinery and equipment, report successive drops in their results, substantially shrinking the domestic steel market," the association said.

"At the structural level, the maintenance of competitive asymmetries further highlighted the difficulties that the domestic industry historically had to face to compete with international producers," it added.

The association believes boosting steel exports would be a way to improve the levels of installed capacity utilization, which is currently around 60%, but the sector is currently contending with international overcapacity exceeding 700Mt, which has led to unfair trade practices and depressed prices.

"Moreover, local competitive asymmetries, mostly due to high financial costs and tax burdens, have not allowed companies to obtain financial returns from exports," the release said.

IABr is urging the government to bring back the original format of the Reintegra tax rebate program, which was designed to bolster local manufacturers by reimbursing them 5% of the value of exports. Currently, the rate is just 1%.

In addition, the steel industry wants interim president Michel Temer's government to introduce agile and effective trade defense mechanisms and to deny China, the world's biggest steel producer and exporter, a market economy status.

OUTPUT

IABr said Brazilian crude steel production slipped 13.2% year-on-year to 12.3Mt in January through May. Domestic steel sales in the first five months totaled 6.7Mt, down 18.4% compared with the same period in 2015

Apparent domestic steel consumption reached 7.4Mt, down 25.8% from January-May 2015.

Home to steelmakers such as Gerdau, Usiminas and CSN, Brazil is Latin America's biggest steel producer.