Brazil Metals Industry Update Quarter 3 2011

• Publication date: August 2012
• Report size: 34 pages

High costs of production, rising inventories, a strong real and a cooling domestic industry are all militating against sustained growth in Brazilian steel and aluminium output in 2011, according to this latest Brazil Metals Report from BMI. Crude steel output rose 7.8% year-on-year (y-o-y) in the first four months of the year to 11.5mn tonnes, while rolled steel products production grew 0.9% y-o-y to 8.5mn tonnes, according to the Instituto A...

High costs of production, rising inventories, a strong real and a cooling domestic industry are all militating against sustained growth in Brazilian steel and aluminium output in 2011, according to this latest Brazil Metals Report from BMI.
Crude steel output rose 7.8% year-on-year (y-o-y) in the first four months of the year to 11.5mn tonnes, while rolled steel products production grew 0.9% y-o-y to 8.5mn tonnes, according to the Instituto Aço Brasil (Brazilian Steel Institute, IABr). Domestic revenues in the four-month period were up 6.3% y-o-y to 7.2mn tonnes. Exports of steel products in the January to April 2011 period rose by 30.7% y-o-y in volume terms to 3.7mn tonnes and by 68.1% y-o-y in value terms to US Dollar 2.7bn. The IABr said that imports of steel products into Brazil fell by 38% y-o-y to 1.13mn tonnes in volume and 16.5% y-o-y to US Dollar 1.31bn in value.
The industry is beginning to feel the pressure from the central bank’s recent increases in the base interest rate and BMI anticipates lower rates of output growth as a result, despite a rise in capacity over the year. We projection 2.9% growth in crude steel output to 34.51mn tonnes in 2011 and 2.5% growth in hot rolled output to 23.89mn tonnes. Measures to clamp down on excess liquidity in the industry in order to curb inflation have led to falling industrial production activity. Higher Brazilian steel prices have also depressed demand, resulting in mounting inventories. BMI expects 4% growth in apparent finished steel consumption to 24.91mn tonnes in 2011, although growth should pick up from 2012. Unless Brazilian steel prices rise to more than a 10% premium over global prices, it is unlikely that domestic production will be substituted for imports on the Brazilian industry .
The reliance on the domestic industry and lack of diversification into external industry s is limiting opportunities for expansion. The Brazilian Steel Institute has said that Brazil steel plants currently have the capacity to produce 47.4mn tonnes per year (tpa) of crude steel and that actual output in 2011 should reach 39.4mn tonnes. On current plans, by end-2015 Brazilian crude steel capacity could increase by up to 30mn tpa. BMI doubts the country would be able to justify a rise in steelmaking as large as this and does not believe that some of the larger projects will go ahead. A moderation in domestic demand growth, a high tax burden coupled with high interest rates and a strong real will militate against sustained high rates of output growth.
The Brazilian aluminium market is faced with similar challenges to steel. In the first five months of 2011, Brazilian primary aluminium output declined 6.6% y-o-y to 592,500 tonnes. BMI believes that fullyear output in 2011 will decline by around 3% y-o-y to 1.45mn tonnes. Novelis’s 49.4% decline in output is the result of the closure of its Aratu smelter and a slight decline in its Ouro Preto smelter. The Companhia Brasileira de Aluminio smelter also reported a 16.2% decline in output, outweighing the increase in output reported by smelters owned by Albras, Alcoa and BHP Billiton. ABAL has projection aluminium product consumption growth of 13% in 2011 with domestic production of aluminium wire and cable set to benefit most from an expected 58% rise in production. BMI expects Brazilian aluminium demand to grow by an average of around 7-9% over the next five years, driven by consumer goods and the automotive market . However, high energy prices are hampering future growth prospects in output and much of the increase in consumption will benefit imports.

Metal Mining Industry in Brazil

Executive Summary 5
Industry SWOT Analysis 7
Brazil Political Environment and Risk Analysis 7
Brazil Economic Environment and Risk Analysis 8
Brazil Business Environment SWOT . 9
World Market Overview 10
Steel Projection . 10
Steel to Average USD 580/tonne In 2011 10
BMI Steel Projection . 10
Steel Prices . 11
Cost Push on The Supply Side . 11
Few Supply Constraints In Sight, For Now . 12
Commodities Projection 16
Commodity Strategy – Metals Update 16
Aluminium. 16
Copper 17
Gold 18
Lead 19
Nickel 20
Tin. 21
Zinc . 22

Market Projection Scenario . 23
Steel 23
Aluminium. 26
Data : Brazilian Consumption Of Aluminium Processed Products (‘000 tonnes) 27
Data : Brazilian Primary Aluminum Production by producer (000 tonnes unless otherwise stated) . 28
Data : Brazil’s Metals Market (‘000 tonnes unless stated), from 2008 to 2015 . 29
Macroeconomic Projections 30
Brazil – Economic Activity 32

Competitive Landscape 33
Steel 33
Aluminium. 39
Data : Brazilian Aluminium Smelters . 39
Data : Brazilian Primary Aluminum Production by Producer (000 tonnes unless otherwise stated) . 40
Data : Domestic Consumption Of Aluminium Transformed Products . 41
Company Profiles 44
ArcelorMittal 44
Gerdau SA 45
Vale . 46
Alcoa . 48
Companhia Siderúrgica Nacional (CSN) 49
Usiminas . 50
World Assumptions, Q311. 51
Data : World Assumptions, from 2009 to 2015 51
Data : World And Regional Real Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) . 52
Data : Selected Exchange Rates, from 2010 to 2013 (average) 52
Developed States . 53
Data : Developed States’ Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) 54
Emerging Industries 55
Data : Emerging Industries’ Gross Domestic Product Growth, from 2010 to 2013 (% change y-o-y) 56
Consensus Projections . 57
Data : Bloomberg Consensus Gross Domestic Product Growth Projections, from 2011 to 2012 (% change y-o-y) . 57
Country Snapshot: Brazil Demographic Data . 58

Section I : Population 58
Data : Demographic Indicators, 2005-2030 . 58
Data : Rural/Urban Breakdown, 2005-2030 59

Section II : Education And Healthcare . 59
Data : Education, 2000-2003 . 59
Data : Vital Statistics, 2005-2030 . 59

Section III : Labour Industry And Spending Power . 60
Data : Employment Indicators, 1999-2004 . 60
Data : Consumer Expenditure, from 2000 to 2012 (US$) . 60
Data : Average Annual Wages, 1996-2002 . 61
BMI Methodology 62
How We Generate Our Market Projections . 62
Cross Checks 62

Steel in Brazil

Brazil Iron And Steel, Exports, Us$mn

• $ 250
• Industry data
• February 2013

Yearly, From 1995 To 2017
By Business Monitor International
Source: UNCTAD

• Industries : Metal Mining
• Countries : Brazil

Brazil Iron And Steel, Imports, Us$mn

• $ 250
• Industry data
• February 2013

Yearly, From 1995 To 2017
By Business Monitor International
Source: UNCTAD

• Industries : Metal Mining
• Countries : Brazil

Brazil Iron And Steel, Exports, % Y-o-y

• $ 250
• Industry data
• February 2013

Yearly, From 1996 To 2017
By Business Monitor International
Source: BMI calculation

• Industries : Metal Mining
• Countries : Brazil

Brazil Iron And Steel, Imports, % Y-o-y

• $ 250
• Industry data
• February 2013

Yearly, From 1996 To 2017
By Business Monitor International
Source: BMI calculation

• Industries : Metal Mining
• Countries : Brazil

Brazil Steel Imports, `000 Tonnes

• $ 250
• Industry data
• February 2013

Yearly, From 1998 To 2010
By Business Monitor International
Source: ISSB/World Steel Association

• Industries : Metal Mining
• Countries : Brazil

Metal Mining in Brazil

Brazil Silver Domestic Population Mn

• $ 250
• Industry data
• February 2013

Yearly, From 1990 To 2017
By Business Monitor International
Source: World Bank/UN/BMI Calculation

• Industries : Metal Mining
• Countries : Brazil

Brazil Crude Steel Production, Us$mn

• $ 250
• Industry data
• February 2013

Yearly, From 2005 To 2010
By Business Monitor International
Source: ISSB, World Steel Association, BMI

• Industries : Metal Mining
• Countries : Brazil

Brazil Steel Exports, Us$mn

• $ 250
• Industry data
• February 2013

Yearly, From 2005 To 2010
By Business Monitor International
Source: ISSB, World Steel Association, BMI

• Industries : Metal Mining
• Countries : Brazil

Brazil Steel Exports, `000 Tonnes

• $ 250
• Industry data
• February 2013

Yearly, From 1998 To 2010
By Business Monitor International
Source: ISSB/World Steel Association

• Industries : Metal Mining
• Countries : Brazil

Brazil Crude Steel Production, `000 Tonnes

• $ 250
• Industry data
• February 2013

Yearly, From 2001 To 2017
By Business Monitor International
Source: World Steel Association

• Industries : Metal Mining
• Countries : Brazil