Latin American rolled steel consumption increases

Latin American rolled steel consumption increases

Trade deficit grows as imported steel consumption increases.

October 4, 2019

Despite the contraction compared with the previous year, the consumption of rolled steel in Latin America has recovered from the previous month for the first time this year. 

Regional consumption from January to July fell 4 percent compared with the same period in 2018; however, it recovered by 6 percent in July, according to a news release from the Latin American steel association, Alacero.

This positive variation is largely because of the resumption of imports from China, which have grown again throughout Latin America, the association reports. In July, Chinese imports from the region increased 5.9 percent compared with June, very close to the 6.3 percent increase observed from May to June. Much of the increase was driven by Mexico, which experienced a 7.3 percent growth in consumption compared with June, which represents 46 percent of the Latin American recovery. In this interval, Chinese imports from the country advanced 31 percent from May to June.

The region increased its imports by 19 percent between June and July, representing a 0.1 percent decline compared with the same period in 2018. The share of imports in regional consumption began in the third quarter at 36 percent, a percentage point higher than that between January and July 2018. The deficit recorded from January to July was 8.06 million tons, 69,000 tons less than the previous year. Overall, there was a 0.9 percent decline.

“Latin America has been punished for low consumption and the consequences of commercial tensions. In addition, the region faces the arrival of cheap products under unfair competition from China,” says Francisco Leal, general director of Alacero.

With prospects not promising for the coming months, the deficit in Latin American rolled steel production has been driven mainly by Mexico's performance, while Brazil is leading the recovery. In July, the cumulative production of rolled steel was 6 percent lower. The month of August registered production of 0.02 percent below the average of 2019, which indicates a “cautiously stable production with timid prospects for the second half of the year,” the association says.

Mexico accounted for 68 percent of Latin America's deficit compared with 2019. The Mexican result indicates an increase of 2.4 percent compared with July production. Despite the increase, gross steel production remains the second worst indicator since December 2016. The recovery of 75,000 tons of Brazil represented 53 percent of the recovery in Latin American production.

The presence of imports in Latin American consumption remained stable. In July, they recorded an increase of 19 percent compared with the previous month; however, the result indicates a 0.1 percent drop compared with July 2018. Mexico registered an increase of 18 percent, which represents 42 percent of the growth of imports in Latin America. Brazil had an increase of 19 percent, which represents 8 percent of regional growth.

The region's exports decreased, driven by the below average withdrawal in the Brazilian market, the association adds.

In July, the Latin American trade balance experienced its greatest deficit since April and was 44 percent higher than the result of June. Compared with July 2018, the deficit advanced 6 percent, which is the worst deficit of the month since July 2017.

Brazil and Argentina were the only countries in the region that achieved a positive balance of 1.3 million tons compared with 124,000 tons in June. The results show “a large gap in investments in manufacturing infrastructure to build its economic recovery.” Mexico represents the largest deficit in the region.

The participation of Latin American production in consumption during the first seven months of 2019 was 79 percent compared with 81 percent in the same period last year. This result shows a loss of space of the local industry in the resumption of consumption, the association says.

In addition to a nonproportional increase in production exports, the aspects of deindustrialization and the loss of competitiveness raised in recent reports are reinforced.