Increased domestic construction and infrastructure spending, and a positive economic outlook for 2023, could mean increased steel consumption at home.

Ternium Brazil steel slab export - Worldsteel

The war in Ukraine, and the sanctions imposed by western nations on the Russian steel industry, has compromised global steel supplies. Among other measures, the United States imposed sanctions against two of Russia’s largest steel producers, Severstal and MMK. The United Kingdom implemented a total ban on iron and steel products from Russia and the European Union (EU) banned supplies of several Russian rolled steel and pipe products. And the production and exporting of steel from Ukraine has been disrupted as a result of the hostilities.

New Steel Sourcing – The Rise of Brazil

This state of affairs has led steel-consuming companies, especially in Europe, to look for other sources of supply. Judging by the growth in its export volumes, Brazil has entered this vacuum to make up some of the shortfall.

According to Worldsteel, Russia produced 7.2% less steel in 2022 than in 2021. Russia’s Ministry of Industry and Trade reported that sanctions affected the export of 4.8 million tons of finished steel, semi-finished steel, and steel pipe. In January 2023, Worldsteel reported that production in Russia and Ukraine was down 24.9% for the month, while Brazil’s was up 12%.

The war-related supply restrictions prompted Brazil, the world’s eighth-largest steel producer, to increase exports to Europe, which grew by no less than 710% in the first half of last year, according to data from the national steel association Aço Brasil. The U.S. remains Brazil’s largest export market for steel, and, although volumes dropped in 2022, that trend may be due for a reversal, if January 2023’s numbers are any indication.

Brazil’s growing importance in global steel markets is highlighted by another recent development. In January 2023, Brazilian antitrust authorities approved the acquisition of the Brazilian steelmaker Companhia Siderúrgica do Pecém (CSP) by ArcelorMittal, a multinational steel producer headquartered in Luxembourg, for $2.2 billion. There are several rationales behind the acquisition, including a Ukraine war connection.

Last year, noted Aditya Mittal, ArcelorMittal’s CEO, “was overshadowed by the outbreak of war in Ukraine, where we have steel and mining operations. The conflict is impacting growth.”

CSP, Mittal added, “is one of Brazil’s lowest-cost slab producers,” a key Russian steel export, and “over the longer-term there is the option to significantly increase its slab capacity.” In other words, the CSP acquisition provides ArcelorMittal with the opportunity to mitigate losses in Ukraine and capitalize on shrinking Russian steel slab sales.

Another factor to consider is that the CSP acquisition “enhances [ArcelorMittal’s] position in Brazil,” said Mittal, providing the company with the opportunity to satisfy local demand, which is set to skyrocket. While global economies, including Brazil’s, face economic uncertainty, Brazil’s economic prospects appear to be relatively rosy, which, along with expected spending increases in Brazil’s infrastructure and housing sectors, will likely increase domestic demand for steel. That raises the question to what extent Brazil can supply export markets to make up for contracting Russian and Ukrainian steel production going forward.

Europe represented 13.4% of total share of Brazil’s exports in 2022, as compared to 2.2% in 2021, according to a report from S&P Global. “The U.S. remained the main destination of Brazilian steel products, but this figure was down 9.4%,” the report noted.

Restrictive Measures Remove

Aiding Brazil’s position in global steel has been the removal of restrictive measures against Brazilian exports of cold-rolled steel products (CRC) by the U.S. and the UK. The U.S. removed anti-dumping and countervailing duties of up to 46% in on imports of CRC from Brazil, while keeping the measures on the same products from other origins, including China, India, Japan, South Korea, and the UK. The UK excluded Brazil from a 25% surcharge on steel sheets and CRC. The termination of those measures by the U.S. may have contributed to a spike in Brazilian imports of 711% in January, according to numbers supplied by the American Iron and Steel Institute (AISI), part of an overall increase of 18% in U.S. steel imports for the month.

In Europe, 2022 showed a 4.6% drop in demand for domestic steel product. This year’s outlook is for a 1.6% decrease, while 2024 is expected to usher in a modest recovery of 1.6%, according to numbers from the European Steel Association (EUROFER). Axel Eggert, EUROFER’s director general, blames the situation on “massive cheap imports from third countries” as well as inflation, supply-chain issues, decarbonization costs, and “Russia’s war in Ukraine and its impact on inflation and global supply chains.”

It remains to be seen whether Brazil will be in a position to supply Europe with increased volumes of steel in the longer run. “Brazil’s steel consumption should double within the next 10 years,” reported Bloomberg, with increased spending foreseen in housing, renewable energy, ports, and oil-and-gas projects.

Impacts on Brazil’s Economy

The Brazilian economy’s gross domestic product grew a surprising 2.9% in 2022, defying some earlier predictions of much more meager growth, a level that may be equaled this year, according to the country’s Economy Ministry. Inflation, which ran in the double digits for the first seven months of 2022, ended the year at 5.79%. The annual rate reported for core inflation came in at just 2.5% annual growth during the last four months of the year and January 2023 showed a gain 5.77%. The data service Statistica projects 4.68% annual inflation this year, and some observers project that the Brazil’s central bank will soon begin to lower interest rates.

The Economy Ministry is optimistic for 2023’s prospects, supported, it says, by greater private investment, capital goods imports, and a healthy rate of jobs creation. “External demand for Brazil’s goods has held up better than it has for its peers,” noted one economic report, with goods export growth reaching 5.5% in the fourth quarter.

With economic uncertainty a given, optimism for Brazil’s economy in 2023 is running better than in some other corners of the globe. If projections hold up, and additional investments in construction and infrastructure come through, it’s probable that Brazil’s steel sector will not be able to continue to supply markets with products they are unable to buy from Russia and Ukraine to the same extent as it has over the last year.