Steel consumption reaches pre-pandemic levels

The pace of growth of steelmaking activities continues with an upward trend, despite the prospects of an uneven recovery in Latin American countries. In September, consumption totalled 5.025 million tons (Mt), an increase of 6.4% compared to August. This recovery was mainly leveraged by Brazil, Mexico and Peru, respectively. In the month, flat steel represented more than 85% of the recovery in consumption, while long steel represented 17.5%. Steel consumption reached 14.245 Mt in the third quarter, which represents an increase of 15.9% compared to the second quarter. Thus, consumption reached the 2020 median (14.245 Mt) and a process of recovery from pre-Pandemic levels of Covid-19 began (see graph 1). If the trend continues, there is a light at the end of the tunnel for the steel industry.

In October, crude steel production was 5,058 Mt, an increase of 1.7% over the same month of 2019. In this period Blast Furnace production grew 4.8% to 2,546 Mt compared to September, while Electric Furnaces reached 2,512 Mt, a 10.2% recovery compared to the previous month. Regarding rolled products, October's production was 4,438 Mt, an increase of 8.1% compared to September and 2.6% in comparison to October 2019. The production of seamless tubes had the highest growth (26%), in second place were the plans, with an increase of 8.4%, and then the long ones, with 7.3%.

Exports played an important role in the growth of production, representing 14.6% of it in September, when the average of the first eight months was 17.6%. This performance contributed to the reduction of the trade deficit.

Imports represented 27.6% of consumption in September, below the 34.6% identified as the average of the first eight months of the year. However, the region's excess production capacity indicates that local production has a way ahead. These import figures oblige us to be alert and identify the unfair trade.

"What we see continues to be a gradual reactivation of productive capacity. However, the producers of the value chain preceding steel, such as iron ore, coal and scrap, do not yet have the ideal conditions for a resumption of production that will accompany the steel industry in a positive way," said Francisco Leal, General Director of Alacero. "Local production is the path to a productive reactivation and, therefore, it is expected that the support of governments will improve conditions so that the entire value chain can recover its normal levels of activity," he added.

The world's largest free trade agreement

After eight years of negotiations, ten countries from the Association of Southeast Asian Countries (ASEAN) and five other Asian and Oceanian countries (China, Japan, South Korea, Australia and New Zealand) concluded the Regional Comprehensive Economic Association (RCEP) on November 15, bringing together about 30% of the world's population and GDP under the new free trade agreement. According to the Atlantic Council, the new agreement will compete with the European Union (EU) as the world's largest trading bloc and will be the most important economic configuration in Asia, with a total share of 27.4% of world trade, compared to 15% in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The main winner of RCEP will be China, which has secured for itself a dominant position in one of the most dynamic economic regions in the world, which provides Beijing the opportunity to establish its preferred rules and standards and brings a great advantage for Chinese companies to take advantage of these valuable markets.

Bilateral trade between Asia and Latin America has grown steadily in recent decades. However, Latin America sells raw materials and imports intermediate products and capital goods, which displaces the manufacturing industry, aggravating the region's deindustrialization process. The situation affects an important steel demanding sector. This process contributed to the fact that most Latin American countries registered growing trade deficits with China.

Source and graphic: Alacero