Chile launches economic strengthening plan in wake of steelmaker Huachipato closure

The plan, also published on Monday, includes 32 strategic measures for the resumption of growth in the region most affected by the closure, and includes a perspective for the development of green steel in the country.

Huachipato deactivated its blast furnace No2 on Monday morning, ending 74 years of operations. The decision to close permanently was announced on August 7, driven by intense competition from imported steel from China, the company said.

“It was a dignified and emblematic end to an era in Chilean steel history, and it stands as a testament that our workers never gave up,” Jean Paul Sauré, CSH’s general manager, said in a statement released by the company. According to Sauré, the furnace began being deactivated at 2:30am local time (GMT-3).

Why did the Huachipato steel mill close?

The closure of Huachipato will affect 1,090 small and medium-sized enterprises and reduce revenues in the municipality of Talcahuano, where the plant is located, according to a study by the Universidad Santísima Concepción released by the Chilean Ministry of Economy, Development, and Tourism. Another study from the Biobío Observatory, also shared by the Ministry, estimates that unemployment in the region will rise by 2.5 percentage points, reaching 11%.

But in response to the closure of Huachipato, the Ministry of Economy also announced on Monday the Biobío Industrial Strengthening Plan, aimed at revitalizing the regional industry and mitigating economic impacts.

“This is a plan that seeks, on the one hand, to strengthen the productive sectors that already exist in the region, to accelerate public investment, private investment, to make the State function more efficiently and also to develop new sectors,” Nicolás Grau, the Minister of Economy, said in an official release. “On the other hand, the plan addresses the short-term challenges associated with the closure of Huachipato, to support supplier companies, to support workers.”

Among the 32 strategies in the plan, the Chilean government has proposed a “hiring subsidy” that will provide a financial incentive to companies that hire any worker from Huachipato or from one of the company’s 162 suppliers that are now at risk of closing.

Deadlines for tax payments will also be extended, and some charges will be suspended for these suppliers at risk. The government also promised to substantially accelerate a list of priority public investment projects, such as road infrastructure, interport routes and bridges.

Héctor Medina, head of the trade union representing Huachipato workers, stressed that this is a difficult time for the region, the country and the workers, but expressed optimism about the proposals.

“We are convinced that we will get through this, but we will get through it with these gentlemen and ladies who supported us,” Medina said in a statement released by the Ministry of Economy.

In the plan, the government also commits to investing $10 million from 2025 and for up to 10 years to implement a technology center dedicated to the energy transition in the Biobío region, and to investigate the development of renewable energies, such as green hydrogen in production processes.

The plan also includes the national Green Steel Plan 2030, wherein the government’s Production Development Corporation (Corfo), launches a public tender for the use of the “Boquerón Chañar” project, one of the most important underground iron ore deposits in the country. The international bidding process for this asset will begin in 2024, according to the plan.

“The bidding for the deposit will be conditional on part of the iron ore extracted being used as raw material in the integrated production of green steel,” the plan states.

In Chile, carbon emissions per tonne of steel manufactured currently stands at an average of 760 kg of carbon dioxide (CO2), which positions the country at the forefront of global green steel production, Chilean steel institute ICHA told Fastmarkets.

Some actions under the Biobío Industrial Strengthening Plan have already begun, but there is no deadline for the results to be recorded.

Huachipato closes its doors

The end of operations at Huachipato occurs at a time of high imports into the country and a drop in apparent consumption. According to ICHA data, apparent steel consumption in the first half of 2024 was 1.10 million tonnes, the lowest level in the decade, representing a 6.7% drop in consumption compared with the same period in the previous year.

This reduction was caused by flat steel, since long products reached a volume of 596,000 tonnes in the first half of 2024, an increase of 18.4% compared with the same period in 2023 — despite having the second lowest apparent consumption observed in the last ten years.

In flat steel, apparent consumption in the first half of 2024 reached 493,000 tonnes, a drop of 24.5% compared with the first half of 2023 and the lowest volume of the decade.

The reduced dynamism of the economy affected the Huachipato steel mill, which was also facing financial difficulties.

In March 2024, Huachipato halted production claiming that the anti-dumping duties in the country at that time were “insufficient” against price distortions from Chinese products. The industry recovered its operation when Chile applied a provisional anti-dumping tariff of 24.9% on steel bars and 33.5% on grinding balls.

The measure was supposed to continue through the end of September, but on September 9 the Chilean Anti-Distortion Commission unanimously ruled out “dumping” on these products and ended the tariffs in force, according to the commission’s statement in the official gazette.

Huachipato had a steel output capacity of 800,000 tonnes per year and produced around 707,000 tonnes of steel in 2023. The company focused on the construction sector, with products such as rebar and special bar quality.

Now the company will continue with its non-steel-related projects in the country, such as investments in ports and logistics systems, and the implementation of a green steel pilot project.

In June, Huachipato signed an agreement with the German SMS Group to accelerate the production of green steel in Chile.

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