Brazilian Steel consuming groups opposes import tariffs hike

26 November 2015

Brazilian steel consuming groups Wednesday expressed opposition to possible higher import tariffs for steel goods and its potential inflationary effects.

The comments come a week after Minister of Finance Joaquim Levy and Minister for Development, Industry and Foreign Trade Armando Monteiro confirmed ongoing studies to elevate the import tariff on steel products to 15-20% from 8-14%.

Rinaldo Maciel de Freitas, executive superintendent of the Brazilian steel importers companies association Abrifa, is against protectionist measures and noted Brazil has one of the world's highest import tariffs.

"Brazilian domestic prices are already the highest in the world and an increased import tariff could have an inflationary impact in the market," he said.

According to Carlos Pastoriza, president of the Brazilian Association of Machinery and Equipment, or Abimaq, if the government decides to elevate the tariff "it will mean another blow to the steel consuming industry."

"As for the machinery industry, its cumulative sales has declined from January 2012 to October 2015 around 30%," he said.

The implementation of anti-dumping duties and/or import tariffs is becoming a tool to restore pricing power for steelmakers in a scenario of weak domestic demand and unimaginable record Chinese steel exports -- close to 100 million mt on an annualized basis, which equals the entire US market. The surge in export volumes has increased competition in global markets and heavily depressed international references.

However, the reality is that steel product imports in Brazil have been declining throughout 2015 mainly as a function of the depreciation of the Brazilian Real and a lack of local demand.

Analysts of BTG Pactual Bank said in a report they believe the industry is in need of additional support to navigate current challenges, and would not be surprised if eventually a higher tariff is applied.

They calculate domestic prices for hot-rolled coil currently trading at a premium above 5%, considering a Chinese HRC at $260-$280/mt, and rebars at around a 0-2% premium, considering a Turkish rebar of $360-$380/mt.

"Hypothetically, an increase in the tariff to 20% would place both domestic references at a discount to imported and lead to dislocation versus historical premiums that ranged between 5-10%," the analysts said.

While acknowledging that domestic demand is very weak, the analysts said the import channel would be further impacted and bargaining power with auto/industrial consumers could be improved.

"In such a scenario, we would attach a higher probability of implementing price hikes," they said.