Brazil’s commodities industry calls for 25% duty barrier to imports; end users express concern

How will Brazil's 25% duty on paper and steel imports impact the buyers market? We take a deep dive into the effects of import tariffs on the Brazilian commodities market

Amid record volumes of imports, the Brazilian paper industry has joined steelmakers in requesting up to 25% import tariffs for certain products, which has worried importers and end users.

In the wake of the Brazilian steel sector’s pleas in 2023, the Brazilian Tree Industry Association (Ibá) requested on January 16 that the government increase import duties to 25% for four boxboard grades and to 16% for two other grades.

Both industries have called on the government to adopt measures to limit the entry of imported products – especially from China – into the country.

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“Our problem is the same as that of the steel sector,” a source told Fastmarkets. The sentiment was echoed by several paper producers in the region.

Market participants highlight that the influx of imports has harmed the competitiveness of non-integrated companies – such as BO Paper, MD Papéis, Ibema and Papirus.

Ibá’s request follows a demand from local producers such as Klabin, Suzano, Ibema and Papirus, according to these participants.

In addition to the paper and steel sectors, market participants in the textile segment also said that they have been severely affected by imports from China. They hope that the government will implement protection measures for Brazilian producers.

These requests are handled by the Brazilian Foreign Trade Chamber (Camex), which is a division of Brazil’s Industry, development and Trade Ministry (MDIC).

Inflationary impact for paper and steel buyers

On February 1, a spokesperson for MDIC told Fastmarkets that the ministry evaluates those requests –which it has received from at least these three different industrial sectors – ”based on technical and legal parameters, regulated procedures and processes.”

“At the end of the public consultation and these analyses, the requests are brought to the deliberation of the collegiate body,” an MDIC spokesperson said in a written statement. No date has yet been set for this discussion.

In an interview with local media, MDIC’s executive secretary Márcio Elias Rosa said that the ministry is sensitive to the steel industry’s concerns but there is still no deadline for a deliberation session. The government is also alert to the measure’s potential inflationary impact, according to Rosa.

“Regarding steel, as [this product] is present at the bottom of the production chain, such as in the production of cars, in theory, an increase in the tariff generates an increase in cost, and the other sectors are against it,” Rosa said.

Imports threaten paper sector 

Chinese exports of boxboard to Brazil grew by 36.1% year on year in 2023, reaching 49,000 tonnes from 36,000 tonnes in 2022, according to Eric Hu, Fastmarkets economist for Asian paper and packaging.

China’s boxboard capacities grew to around 3.5 million tonnes annually from 2022…

“China’s boxboard capacities grew to around 3.5 million tonnes annually from 2022. We think this trend will continue at least in the next two years. However, China’s boxboard demand only grew around 1 million tonnes annually,” Hu said.

There are severe overcapacity problems in China, Hu explained, adding that domestic producers have to go to overseas markets to digest the tremendous amount of capacity.

“In 2023, China’s domestic boxboard price has dropped to a seven year low due to overcapacity and a lukewarm consumer market, which makes it very competitive in the global market,” Hu said. In the future, the economist expects exports will continue to grow, and “Latin America local producers will inevitably meet more competition from China.”

Boxboard imports from Asia – and, to a lesser extent, Europe – have continued to arrive in Brazil, market participants said, noting that some buyers have been making opportunistic purchases of lower-priced material.

“The influx of imports is something we’ve been observing for a long time. The volume entering is around 10,000-12,000 tonnes per month. The fact is that some printing houses are risking retaliation [from domestic producers] to make purchases and take advantage of the low prices offered,” one source said.

According to some market participants, large national and integrated producers such as Suzano and Klabin “do not suffer as much” in this situation and can maintain their competitiveness without yielding to lower prices.

But one source told Fastmarkets last month that it is “difficult to understand” how non-integrated companies can be competitive given the high volume of imports.

A second source said that national producers’ sales volumes in the boxboard segment declined by up to 4.5% last year due to the entry of imported paper.

“It is clear to us that the Asian [buyers are] not consuming. In addition to that, there is the entry of new machines [in Asia]. They are sending their production to the rest of the world at lower prices,” the second source said.

Boxboard import scenario mirrors steel industry

The scenario is confirmed by data: Boxboard imports’ share of production more than doubled between 2020 and 2023.

“[This means] that the local industry was losing market share to supply the domestic demand,” Rafael Barisauskas, Fastmarkets economist for Latin America, said.

Imports’ share grew from 7.7% in 2020 to 20.5% in 2023. Similarly, Brazilian boxboard exports’ share of local production diminished in the same period, “indicating that local producers were reducing shipments abroad to supply the local market and fight back the increase in import volumes,” Barisauskas said.

Amando Varella, Papirus co-chief executive officer, said in an interview with Fastmarkets that the Brazilian non-integrated boxboard producer is “losing ground in the face of the increasing volume of imports at prices lower than those practiced by the local industry.”

He pointed out that this is already the scenario in other sectors, such as steel, “where the increasing volume of steel imports from China has already had a strong impact, affecting giants like Gerdau, ArcelorMittal and Aperam.”

The situation “creates the false perception” that the Brazilian industry is not competitive, “forcing us to lower prices disproportionately and causing an imbalance in the market, given the growing volume of imported boxboard from China and Europe,” according to Varella.

“It becomes essential for the government to raise the import duty on boxboard to 25%, while conditions in world geopolitics remain unstable,” he said.

Imports threaten steel sector

Brazil imported a historic 5.02 million tonnes of steel in 2023, 50% higher than the 3.35 million tonnes reported in 2022, according to figures from the National Steel Association Aço Brasil.

At the same time, Brazil produced 31.87 million tonnes of crude steel, a drop of 6.5% from 34.09 million tonnes in the previous year.

The association estimated that Brazil’s steel imports would increase by another 20% in 2024 to 6 million tonnes. The apparent consumption of steel products in the country was 23.89 million tonnes in 2023, up from 23.53 million tonnes in 2022.

Marco Polo de Mello Lopes, executive president of Aço Brasil, said that the country would be engaged in an “asymmetric war” against China – a sentiment that was echoed by several steel mill executives at multiple events in 2023.

Notably, Gustavo Werneck, chief executive officer of Gerdau, said that China does not practice fair competition and sells below steelmaking costs.

However, Brazil-based traders have argued that the request to increase the import tariff is simply a way for the mills to increase prices in the domestic market.

“If the duty goes up 10%, the following month the mills will [raise] their prices by 8%,” a trader source predicted.

I believe that the tax will come … I also think there will be a lot of pressure from steel end users

“I believe that the tax will come – that the government will not leave steelmakers without a response – but I also think there will be a lot of pressure from steel end users,” the trader source said.

Brazilian capital goods, construction and steel packaging industry groups are against the request to raise steel import duties to 25%, citing expectations that each sector will face rising costs if an increase is adopted.

Mercosur’s list of exceptions

Mercosur trade bloc members – Argentina, Paraguay, Brazil and Uruguay – are subject to the Common External Tariff (TEC), which defines the import tax applied for each item listed under the Mercosur Common Nomenclature (NCM) and defined by an eight-digit identification code, which is based on the Harmonized Commodity Description and Coding System.

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

On October 4, Aço Brasil made an official request that Brazil’s list of exceptions be expanded to include steel products such as hot-rolled coil, cold-rolled coil, galvanized sheet, aluminium-zinc coated coil (Galvalume) and reinforcing bar (rebar). The association asked for an increase in import duties from 9-16% to 25%.

On November 3, the Brazilian tubemakers’ association Abitam requested that another 10 products be included in the list of exceptions, such as pipes used in oil or gas pipelines and welded pipes. The association asked that the duties for these products be increased from 11.2% to 25%.

On December 7, Brazilian steel and iron ore producer Companhia Siderúrgica Nacional (CSN) requested the inclusion of three pre-painted steel products in LETEC, raising tariffs from 10.8% to 16%.

On January 16, Ibá asked that six boxboard grades be added to LETEC. That inquiry is now being analyzed alongside the steel requests.

LETEC changes are implemented every six months, and up to 20 goods can be adjusted each period in Brazil, with the full exception list limited to no more than 100 items.

On January 24, Brazil adopted another instrument to increase import tariffs due to trade imbalances.

The “special tariff measures due to trade imbalances derived from the international economic situation” complements the list of exceptions and enables the country to temporarily raise import duties for goods originating from outside the trade bloc above the Mercosur TEC.

If a request for a duty increase is approved by Mercosur’s Council of the Common Market (CCM), this instrument allows a higher tariff to be valid for 12 months, which may be extended if the conditions that justified the measure persist.

According to Aço Brasil, the adoption of this mechanism is “positive.”

“It creates new positions to accommodate requests for increased import tariffs in reaction to market imbalance, such as that currently faced by the steel industry, with the escalation of entry of steel products imported into the country,” the association told Fastmarkets.

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