LATIN AMERICA LONG STEEL WRAP: ArcelorMittal, Votorantim raise concerns in Brazil’s market

ArcelorMittal’s Brazilian subsidiary, in a move intended to make the company more competitive domestically, signed a deal at the end of February to purchase local long steel producer Votorantim Siderurgia.

The acquisition of Votorantim’s assets does not modify ArcelorMittal’s expansion plans in Brazil, such as the projects to increase crude steel capacity at the João Monlevade works and to add meltshop capacity at the Juiz de Fora unit. These are currently on hold.

The effects of this deal on the Brazilian long steel market have yet to be felt, however.

Besides ArcelorMittal and Votorantim, Gerdau is the only other major producer in this sector. Other companies such as GV do Brasil (controlled by Mexico’s Simec), CSN and Aço Verde do Brasil have smaller capacities.

“The local steel market is becoming even more consolidated, and this scenario raises some questions, mostly in terms of competition and prices,” a São Paulo-based source said.

A second source agreed, showing similar concerns about market prices. “Now the bargaining power will be even more concentrated,” he said.

At the beginning of March, Brazilian long steel producers were seeking price increases of 10-12% in the domestic market in an attempt to improve their margins, amid rising prices in the global market.

But these rises have yet to be accepted by local customers, which have been against price adjustments because demand from the major long steel consumer industries, such as the construction sector, continues to be weak.

Metal Bulletin’s monthly price assessment for Brazilian rebar was 3,250-3,410 Reais ($1,038-1,089) per tonne delivered in early March, unchanged month-on-month.

Moreover, this week, Gerdau announced the creation of a joint venture with Putney Capital Management, based on the sale of its 50% interest in Colombia’s Gerdau Diaco.

The new company’s assets will be created from Gerdau’s long steel units in Colombia, which have combined installed steel production capacity of 674,000 tpy.

In August 2015, Gerdau said that it was open to discussing potential asset sales in light of the challenging conditions in the global steel market. The company’s portfolio review could result in the partial sale of stakes, the establishment of joint ventures or mergers.

The market expects the Brazilian company to announce more such deals during 2017 for its steel operations in other South American countries, such as Peru.

Latin American export prices for long steel and billet were stable in the last weeks of March, after an increase recorded earlier in the month.

Metal Bulletin’s weekly price assessment for Latin America-origin billet exports was $410-420 per tonne fob on March 24, up from $380-390 per tonne fob on March 3.

This increase mostly reflected new offers placed in the market by Brazilian companies.

Meanwhile, Metal Bulletin’s weekly price assessments for rebar and wire rod exports in Latin America both rose to $440-450 per tonne fob on March 24, from $405-425 per tonne fob.

This was more related to a market perception about the workable prices for these products than to real deals, as offers for rebar and wire rod from Brazil were not reported during March.