2017 REVIEW: Brazilian flat steel prices track international trends

The Brazilian flat steel industry has never been so closely linked to price changes in the international market as it was in 2017.

Local steel demand, still in recovery, would not justify increases in domestic prices, but the adjustments implemented this year were justified by higher global prices.

The export price of China-origin hot-rolled coil, for instance, started 2017 at $480-490 per tonne fob on January 6. It is ending the year quoted at more than $575 per tonne, with Metal Bulletin’s fob China HRC Index reaching $575.63 per tonne on December 12.

Senior executives at Brazilian flat steel producers repeatedly said that price increases in the local market were due to rising international prices, mostly in China.

But increases in global values cannot be “an excuse” for these upswings in Brazil, a domestic source said. “And [what about] the mills’ fixed costs? Their input expenses, operational costs?” he asked.

Following international pricing trends, Metal Bulletin’s monthly price assessment for Brazilian domestic HRC rose to 3,540-3,670 Reais ($1,075-1,114) per tonne ex-works on December 8, from 3,240-3,480 Reais per tonne ex-works on January 13.

Brazilian local prices for not only HRC, but also other flat steel goods such as cold-rolled coil (CRC) and hot-dipped galvanized coil (HDG), were high in comparison with other prices in the global market because they include local taxes.

But Metal Bulletin is proposing to re-align its Brazilian domestic steel price assessments – including HRC, CRC and HDG – to reflect market practices, making changes to the calculation of its monthly figures.

The intention is to exclude local taxes from the price calculation methodology, with a consultation period for these proposed amendments ending on Thursday January 4.

The pricing uptrend in the global market was cited as the cause of the three upswings applied by Brazilian mills to the local distribution chain this year.

The first rise of 8-10% was announced in January and was passed on to the distribution market in the first two months of the year.

This price increase was valid for HRC, CRC and HDG, and was imposed by Brazilian firms ArcelorMittal, CSN, Gerdau and Usiminas. In the case of Gerdau, the adjustments were valid only for HRC because it does not produce CRC or HDG.

At that time, not only higher international prices were behind this move, but also increased costs for steelmaking raw materials such as iron ore and coking coal.

In July, Usiminas took the lead with the announcement of a price increase of 10.70% for HRC – “to reflect the rebound in HRC prices in the international market,” it said.

It was followed by Gerdau and ArcelorMittal, which applied a rise of around 10% in late July.

CSN was the last to announce changes in its price portfolio, with its flat steel prices, including HRC, rising by 12.75% in late August.

For September, the same sequence of events was repeated.

Usiminas announced in mid-August that it would raise its flat steel prices to the domestic distribution sector by 13.10% in September.

ArcelorMittal and Gerdau then informed the market that they would also adjust their September prices by 12-13%.

And finally, CSN scheduled an upswing of 10.25% for its flat steel goods for October 1.

Encouraged by positive market conditions globally, Usiminas decided to once again raise prices for most flat steel products by 10.25% at the beginning of October.

But in late October, the company said it had backed down from a further increase due to lower prices in China reported at that time.

“We did not apply the price increase announced [to take place in] October because HRC prices in China fell to around $555 per tonne,” Usiminas chief executive officer Sergio Leite said at the time.

At the end of November, Leite said that he expected Brazilian domestic prices in the distribution chain to remain stable in the short term.

But he did not discard the possibility of new price adjustments in the local market if Chinese HRC prices reach extremely high levels.

“There are market sources saying that Chinese HRC [export] prices could come to about $700 per tonne early next year,” Leite said. “But I personally do not believe in this possibility.”

In early December, market rumors in Brazil indicated that mills were planning to raise local prices some time in January, again blaming higher flat steel prices in the global market as well as high raw materials costs. But these rumors could not be confirmed at the time of publication.