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Resumption of production at the plant was scheduled for April 2018, after almost three years of being idle because of weak market conditions.
This move was seen by domestic market participants as one of the first signs that the Brazilian economy is gradually improving, affecting steel demand levels.
But in mid-May, a scandal emerged that involved Brazil’s recently installed president, Michel Temer, and brought uncertainty to the country’s metals markets.
National flat steel association Inda said that this latest episode of political chaos in Brazil has clouded the outlook for the domestic flat steel market.
“Our clients, which were starting to rebuild [steel] inventories, are now only purchasing volumes [for their immediate requirements],” Inda president Carlos Loureiro said. “Customers put on standby mode everything that they could.”
Until this new political crisis passes, at least, estimates for the output of the Brazilian steel industry were put on hold, with a clearer view of the sector expected only in the second half of this year.
“Until yesterday, [we] could say the economy was improving. Now we are back to square one,” a Brazil-based market participant said.
Ratings agency Moody’s, for instance, on May 26 changed its outlook on Brazil’s issuer rating to negative from stable.
This decision was driven by the increased uncertainty about the momentum of reform following the recent political events and, in consequence, the rising threat to Brazil’s economic recovery and medium-term economic strength.
“Whatever its outcome, the political crisis that erupted in Brazil last week seems likely to undermine the government’s reform agenda and stall passage of future reforms, including social security,” Moody’s said.
“This is likely to negatively affect investor confidence and lead to increased market volatility, threatening the positive macroeconomic momentum observed since President Temer began to push through reforms,” the ratings agency added.
Import market The latest political crisis in Brazil has also had an immediate effect on the local import market.
“Clients are backing off [on bookings] after today’s events,” a Brazil-based source said in mid-May.
At least one client in the country requested a one-month delay on a previously booked shipment of flat steel.
“The main problem [is] that most clients will now adopt a waiting stance,” a second source in the country said at the time. “No one wants to discuss [anything] regarding steel imports.”
Besides the concerns raised by the political turmoil in Brazil, the South American flat steel market in May was also affected by the price volatility in China.
“It has been hard to understand the price trend [in China],” a Colombia-based steel buyer said.
Chinese export prices went up and down several times, depending on the conditions of the local market in the Asian country.
Metal Bulletin’s weekly price assessment for hot rolled coil (HRC) imports in South America, including Brazil, ended last month at $470-490 per tonne cfr on Friday May 26, up from $455-465 per tonne cfr on May 5.
Over the same period, cold rolled coil (CRC) import prices increased to $495-515 per tonne cfr from $490-510 per tonne cfr, while hot dipped galvanized (HDG) prices moved to $575-590 per tonne cfr from $580-590 per tonne cfr.
Currently, in Brazil, the premium – the difference between prices of domestically produced and imported material – is 12-15% for HRC and more than 20% for CRC and HDG, according to Inda.