steel - Brazil Steel Sector to Face Tighter Ferrous Scrap Supply in New Year

Brazil’s supply of ferrous scrap is expected to become tighter at the beginning of the new year once local steel mills increase their utilization of capacity and reopen idled plants, S&P Global cited industry sources as saying in late December.

Brazil’s new president Jair Bolsonaro has made a commitment in the previous campaign to refuel the Brazilian economy by boosting investments in the construction and infrastructure sectors as a priority. Further, Brazil’s expected stable macroeconomic performance could shore up growth in major steel consuming industries.

The ferrous scrap has continued to be generated at a slowing pace in the country since 2014 as the country fell deep into a recession between 2014-2016.

A large-lot scrap dealer expressed a concern that any resilience in steel production would immediately stimulate demand for ferrous scrap supply, which may be unbalanced at first.

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Brazil consumed 8.9 million metric tons (mt) of ferrous scrap in 2017 and could expect an approximate level for 2018, according to data from INESFA, the national ferrous scrap association.

Currently, the Brazilian steel industry are generally running at a utilization rate of 68% of its annual production capacity of around 50 million mt, according to the national steel association Aco Brasil, who said it is likely to improve to 75% if the economy picks up.

Additionally, market observers expected scrap generation from obsolete industrial and household goods will not occur before the second quarter of the year, when consuming abilities of Brazilian citizens should start to improve and replacements made.

“The scrap supply tightness may push scrap prices up a bit during the first quarter, but not much,” a dealer said.

Brazil’s steel sector consumes nearly 90% of the ferrous scrap supply in the local market, with two or three major producers accounting for 80% of this consumption.

The pricing power for ferrous scrap in Brazil often is in the hand of steelmakers and dealers typically have no bargaining power, another dealer said, adding that 2018 was an atypical year in which scrap recyclers were able to raise prices considerably in the first half due to a limited supply.

According to steelmaker sources, mills have alternatively been shifting to imported scrap — and even paying more for the raw material from overseas — in an attempt to pressure domestic suppliers.

Brazil imported 138,000 mt of ferrous scrap in September 2018, surging 6,213% year on year and setting a record high, according to data from the Ministry of Industry and Foreign Trade.

Brazilian ferrous scrap import volumes from January to September in 2018 amounted to 228,663 mt, in contrast to less than 20,000 mt throughout 2017. The previous import record was fixed in 2010, when the country saw a total imports of 134,370 mt of the raw material.

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