Brazilian steel end users criticize import duties increase request, warning of possible high costs

Brazilian capital goods, construction and steel packaging industry groups are against a request from steel mills for the country to raise its steel import duties to 25%, already predicting rising costs in each sector if an increase is greenlit

According to the Brazilian capital goods association Abimaq, the duty increase could raise the prices of refrigerators, stoves, auto parts, automobiles and machines.

“As steel is a raw material that supplies several other industrial chains, these protectionist measures would affect the entire industrial [value] chain, which would have significant impacts on several sectors of the economy that employ many workers,” Abimaq executive president José Velloso told Fastmarkets on October 11.

Abimaq said the request for higher import tariffs was “contradictory” because some steel mills import semi-finished steel for their own subsequent rolling.

“From infrastructure to energy generation, rail transport, transportation of trucks, people, and buses, everything uses steel,” Velloso added.

The Brazilian steel association Aço Brasil requested that import duties on steel products be increased to 25% to curb an inflow of imported material and avoid plant closures. At the Brazilian Steel Conference in São Paulo in September, Gerdau and ArcelorMittal said that some factories are operating at lower capacity, and there would be some layoffs if the 25% import duty wasn’t adopted.

Steel import prices have been constantly falling in recent months, with Fastmarkets’ weekly price assessment for steel hot-rolled coil import, cfr main ports South America decreasing to $580-615 per tonne on October 13, down from $590-615 per tonne on September 15 and from $620-640 per tonne on August 4.

On October 1, following mills’ request for higher duties, the Brazilian government decided to increase import tariffs on 12 steel products to 9.0-14.4%, from 8.0-12.8%. However, the Brazilian chamber of construction industry CBIC said that the tariffs should be maintained at the previous level of 8-12.8% for at least the next three years, until December 2026.

According to CBIC, the duty increase could “greatly minimize” the positive socioeconomic impact of Brazilian governmental projects, such as housing finance program Minha Casa, Minha Vida (MCMV) and public investment plan Programa de Aceleração do Crescimento (PAC), or even make these programs unfeasible.

“A house from the MCMV program built with mesh made from wire rod will be more expensive, as will a bridge or dam that are part of the PAC and basically use rebar and concrete,” CBIC’s vice-president Dionyzio Klavdianos told Fastmarkets on October 11. “The price of Brazilian steel is based on the international price and the respective cost of clearing through customs,” he added.

“We can say, without fear of making mistakes, that the direct and indirect effects of price increases and loss of competitiveness will go in the opposite direction to the much-desired reindustrialization and improvement of infrastructure,” Abimaq’s president added.

Steel packaging

The Brazilian steel packaging association Abeaço does not support a tariff increase for steel used in packaging, but it is not against an increase for all 16 steel products because it understands that there is a large influx of steel coming from China, in general, that could harm the Brazilian industry, the association said.

“Abeaço is against increasing the import tax on steel for packaging [in particular] as there is no competition in the domestic market, and some types of steel for this application aren’t produced by the local industry,” the association said in a written statement to Fastmarkets on October 11. The packaging steel sector uses raw materials such as tinplate and chrome-plated sheets.

According to Abeaço, the tariff increase for this kind of product could “seriously affect” steel packaging factories. “Most of them are medium-sized and family-owned, being responsible for more than 20,000 direct jobs and more than thousands of other indirect jobs,” the association said.

Automakers’ stance

When asked by Fastmarkets at a press conference on October 6 about the potential steel import duty increase, Brazilian automotive association ANFAVEA did not directly oppose the request from Aço Brasil. Instead, ANFAVEA president Márcio de Lima Leite said that the automotive sector should participate in this debate.

“I have talked a lot [with Aço Brazil and the Brazilian government] about the need for ANFAVEA to participate in the debate and this decision,” he said.

ANFAVEA’s conciliatory position about the measure can be related to the fact that the Brazilian automotive association has its own battle against imports. Due to concerns about the number of imported vehicles in the country, ANFAVEA is proposing to the government the end of an import tax exemption for hybrid vehicles in Brazil and the adoption of a 35% duty.

Despite pursing its own claim, ANFAVEA highlighted that around 25% of the steel produced in the country is destined for the automotive industry. “So we want to work together to present solutions for the country that keep the [steel] sector competitive, while preventing a loss of competitiveness for the automobile industry,” de Lima Leite said.

Duty towards Mercosur

As a member of the Mercosur trade bloc, Brazil is subject to the Common External Tariff, which defines the import tax rate that can be applied to products according to their tax classification for bloc members like Argentina, Paraguay and Uruguay. However, not every rate change is subject to bloc acceptability.

Mercosur members are allowed to apply duties that are different from those agreed by the economic bloc for a limited number of products in a mechanism called List of Exceptions to the Common External Tariff (LETEC).

At the beginning of October, Aço Brasil made an official request to be included in the list of exceptions to the Mercosur tariff. The association asked for an increase in import duties to 25% for 16 steel products such as hot-rolled, cold-rolled, galvanized, aluminium-zinc coated (Galvalume) coil and rebar.

Daniela Lacerda Chaves, a lawyer specializing in customs law, import and export, from HLL & Pieri Advogados, said that for a product to be included in the Mercosur’s list of exceptions, the industry should demonstrate the expected economic impacts of the proposed rate change in terms of cost reduction, changes in competitiveness, production, employment, import and export conditions.

In addition, the industry must detail the current production scenario and competitiveness of the product with present-day protections, as well as the impact on the tariff structure to the product’s supply chain and the urgency and relevance of the proposed change.

“The request for a tariff increase here in Brazil must consider and highlight criteria of national relevance,” Lacerda Chaves said.

LETEC changes occur every six months, and 20 goods (defined by an eight-digit identification code) can be adjusted each period in Brazil, respecting the limit of up to 100 codes, Lacerda Chaves noted. Aço Brasil’s request must now be approved or rejected by Brazil’s foreign trade ministry.

Lacerda Chaves added that, in addition to LETEC, there are some exceptional cases of adjusting import tariffs, such as in the case of fundamental social-political factors or risky situations like the Covid-19 pandemic.

“It should be noted that the original tariffs for many products in the steel sector that were reduced due to the Covid-19 pandemic are already expected to return to their original rates,” Lacerda Chaves said.

Galvalume® is a registered trademark of BIEC International.

What to read next
Fastmarkets advises that, as of Friday December 8, it has not settled its assessments of certain monthly regional ferrous scrap markets.
What’s the market sentiment for December? Read on for a summary of the results of our US ferrous scrap market survey for December, or click here to download your copy of the full US Scrap Trends Outlook for December 2023. The US ferrous scrap market is hotting up in winter months Significantly depressed scrap flows […]
The consumption of steel scrap in the United Arab Emirates (UAE) was expected to rise sharply in the coming years amid expansions in steelmaker capacities to feed greater steel demand
As the world’s second-largest iron ore exporter, Brazil is expected to play a key role in helping the global steel industry slash carbon dioxide (CO2) emissions; Brazilian companies are already taking action to mitigate greenhouse gas (GHG) protocol Scope 3 emissions – those encompassing the entire value chain
The gloomy economic tone at the conference was compensated by the large numbers of delegates in attendance and cheerful networking. 1. Slow growth in China Slow growth in China continued to spook market participants. Those who have recently returned from trips there shared anecdotes and photographs on social media of blue skies and a lack […]
The MENA region is already well equipped to produce cheap, green hydrogen because of its extensive solar resources, but the fact that its steel industry is mainly focused on the use of direct-reduced iron (DRI) modules and electric-arc furnaces puts it in a unique position in terms of producing the low-carbon steel that is becoming […]