Domestic prices of steel products to remain capped by overcapacity, politics - Barclays

The Brazilian government's determination to rely on public hearings to decide on the new list of 100 products to be protected by higher import tariffs illustrates its concerns about production cost increases created by the previous list, UK bank Barclays Capital said in a research report. "The decision supports our thesis that higher import tariffs are cyclical in nature rather than structural. While the inclusion of galvanized steel products is still a possibility, it is far from certain, and in either scenario we expect domestic prices to remain capped by overcapacity and politics," Barclays analyst Leonardo Correa said in the report. The decision for public consultation, made by the country's industry and foreign trade ministry's commerce chamber, Camex, can be seen as a reaction from the government to complaints received from at least 35 industrial sectors on the increased costs of production created by the previous list of products, which raised import tariffs last October. According to Camex, the first list was created taking into account the impact on prices, imports and the level of production capacity and utilization rates, among other factors. "Reportedly, the study group that will decide on the new list of products will have autonomy to choose a list with less than 100 items and possibly suggest a revision of the first list released in September," Correa said. However, a final decision seems more distant, according to Barclays. "The new list should ultimately be a political decision on what sector to protect. The government was very clear that higher import tariffs would be tied to stable pricing in the domestic market, and the local industry will be very careful in price increase attempts in this environment, and need to be very quiet." Barclays said the government should not allow abnormal profitability levels for local players and will ultimately reduce import tariffs if they need to. Meanwhile, the government considered that imports of galvanized products did not affect the strong market position of local steelmakers.