LATIN AMERICA FLAT STEEL WRAP: Brazilian economy weakens amid higher inflation, trucking strike

The economic scenario in Brazil is becoming uncertain, with a higher rate of inflation and the still-uncertain outcome of the continuing strike by truck drivers.

Economists surveyed by the Brazilian central bank have reduced their forecasts for the country’s gross domestic product (GDP) in 2018 to growth of only 2.37%. Last week, they predicted a 2.50% rise and they estimated a 2.75% increase a month earlier, according to a report published by the bank on Monday May 28.

At the same, economists have raised their forecasts for Brazil’s inflation rates this year to 3.60%, from 3.50% a week before and 3.49% a month earlier.

“The continuing [truck drivers’] strike will affect the economy, but it is temporary. In summary, the expressive growth that was expected for this year is unlikely to be realized,” a metals analyst told Metal Bulletin on May 29.

“The second-quarter [steel sector performance] will be affected, but activity will gradually recover during the second half [of 2018],” he added.

The Brazilian steel industry continues to face logistics and production issues due to the nationwide strike by truck drivers, with mills such as Gerdau, Usiminas, CSN and ArcelorMittal facing output disruptions and delays to shipments.

The steel supply chain is also being severely affected, with national automotive association Anfavea saying that all vehicle production lines have been stopped as a consequence of the strike.

Also, Brazilian ferro-alloys producer Ferbasa said late on Friday that its production and shipment operations have been affected by the strike action.

“The company is taking all preventive and mitigation measures to minimize the effects related to the national situation,” it said.

The issues faced by the steel chain should prevent the sector from meeting the consumption, output and sales targets set by Brazilian steel institute Aço Brasil, according to market representatives. But the effects have yet to be fully assessed.

In late April, Aço Brasil said that it expected domestic steel sales to increase by 6.6% in 2018 on an annual basis, to 18.01 million tonnes.

On Sunday, the Brazilian government announced that it had reached a deal with the haulage industry protesters to end the week-long strike, but blockages on main roads have continued, according to reports from local media.

As part of the deal with truck drivers, the government committed to promoting a reduction in diesel fuel prices, and proposed to draft new laws to establish minimum freight prices and reductions in toll rates.

Despite the potential effects on the economy and the steel industry’s performance, the planned price increases in flat steel products set for June in Brazil are not at risk.

“Pricing strategies are for the long term. Mills are not expected to change their minds due to the issues related to the strike,” a second analyst said.

“Prices in the international market remain high, and import levels are not predicted to rise,” he added.

Brazilian flat steel producers have announced price increases of 8-15% to distributors and industrial clients for early June, according to national flat steel association Inda.

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