As one of the supposed high-growth “BRIC” nations Brazil has great potential with an economy supported by plentiful natural resources. As the second largest exporter of iron ore in the world, however, Brazil has more recently been struggling with the collapsing price of the raw material. Given stuttering global crude steel production driven by falling demand for steel, it is interesting to note that Brazilian iron ore exports actually increased by 6% in the first eight months of the year when compared to the same period of 2014 with the bulk of the growth accounted for by a more than trebling of tonnage being shipped to Malaysia. This growth can be explained when it is considered that Brazil has some of the largest and highest grade iron ore mines in the world and Vale, for example, can therefore still profitably produce iron ore even at these low price levels.
Steel demand within Brazil remains subdued. Crude steel production in the first eight months of the year remained flat and imports fell by more than 7%, with around half of all steel exports to Brazil coming from China. Much like China, however, subdued internal demand has encouraged steel producers in the country to look to overseas markets for sales. There are also other factors that are encouraging Brazilian exports, not least the astonishing 40% depreciation of the Real against the US dollar since the start of the year and the local, cheap supply of high-grade iron ore.
All of these factors have meant that Brazilian steel exports have increased by 52% this year to 8.4m tonnes in the first eight months. Much of this increase has come from the export of semi-finished steel products, with shipments up 45% with an incredible 418k tonne increase in slab shipments to the EU and the delivery of 442k tonnes of slabs to Turkey compared to zero last year. It is clear that EAF steelmakers in Turkey and the EU have been shipping in slab from countries such as Brazil instead of making the steel themselves.
The other product that has seen major increases in exports has been hot rolled coil with shipments increasing by a factor of three. So far this year, from virtually zero tonnage last year, 414k tonnes has been exported to the EU, 155k tonnes to Turkey and 112k tonnes to Argentina. There has also been an additional 261k tonnes of HRC shipped to the US.
With ongoing political and economic problems, Brazil’s GDP is expected by the IMF to contract by a worrying 3% this year and a further 1% in 2016 weighed down by a big fiscal deficit, growing inflation, political instability and increased unemployment. This contraction is likely to lead to further currency depreciation so despite a forecast from Australia’s department of industry that Brazilian steel consumption will grow in 2016, it is likely that exports from the country will see further growth. When combined with the large tonnages of low-cost steel coming out of China, Russia and Iran, the tonnage from Brazil will contribute to increasing pressure for steelmakers in other nations.