Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Tight scrap supply and the resultant increase in their prices are restricting Latin American steelmakers from expanding steel production this year. Davis Index spoke with various steel associations across Latin America to get their view on the importance of scrap export quotas in the region.

 

Scrap prices have skyrocketed in the region as yards hoard scrap, which in turn is hurting steelmakers’ output, Francisco Leal, General Director at Latin American Steel Association (Alacero) indicated.

 

He added that the shortage of scrap was so acute in Latin America that some steel producers had to suspend production due to the lack of this raw material. To protect the scrap and steel industry, Alacero called on March 8 the industry to set restrictions on scrap exports because China will demand more scrap this year to produce steel as it switches its production method from blast furnace to electric arc furnaces (EAF), which require significant scrap. “In 2020, about 47pc of Latin American steel production was developed using EAFs, while 15pc of Chinese crude steel output came from this process,” Leal noted.

 

Last year, Brazil, Mexico, Chile, Peru, Colombia, and Argentina, which represent about 70pc of the Latin American region, exported 1.86mn mt of scrap to the US, Bangladesh, India, Pakistan, and Taiwan. In 2019, these countries shipped 1.97mn mt of scrap to these regions. On the other hand, Latin American scrap imports increased to 2.69mn mt in 2020, from 2.21mn mt in 2019, according to Alacero data.

 

Scrap quota

Making a case for scrap export quotas, Leal indicated that each Latin American government could evaluate a progressive policy to set a scrap export quota, considering their national supply capacity. Still, countries like Peru, Colombia, and Chile, which need more stringent control over scrap exports as an impact on the steel industries in those nations would have a direct impact on steel jobs.

 

For example, in October 2020, the Colombian government implemented temporary export quotas on scrap to ensure the availability of this raw material for domestic consumption. The government also imposed quotas of 28,404mt on foundry scrap of iron or steel and waste ingots of iron or steel valid until March 2021, according to the Ministry of Commerce, Industry and Tourism or (Mcit) data.

 

Scrap is essential for Colombian steelmakers to produce steel products, Andrés Salazar, executive director at the Colombian Steel Chamber (Camacero) said, citing figures from Colombia’s National Administrative Department of Statistics (Dane).

 

However, only some companies that trade scrap in Colombia are exporters, Salazar noted, adding that in the last 10 years the South American country has exported 65,000mt of scrap, valued at $35mn. Colombia’s steelmakers consumed 1.4mn mt of scrap in 2019, with a value of COL1.1bn ($296mn).

 

Disagreement over quotas

Latin American countries like Brazil, however, are against setting up scrap export quotas. The Brazilian steel industry particularly is against setting up restrictions on scrap exports, according to the Brazilian Steel Institute (Aço Brasil), since that industry is against the government measures that artificially aim to seek a market balance.

 

Aço Brasil data indicates that the South American country’s scrap exports reached 710,050mt in 2019, from 356,123mt shipped in 2018, while scrap imports stood at 173,609mt in 2019, from 266,565mt in 2018. Data for 2020 is not available yet. While the country is the largest steel producer in Latin America and has enough scrap to produce steel despite the increasing exports, Aço Brasil noted that Brazil’s steel output by using scrap remains restricted.

 

México’s scrap exports reached 718,126mt in 2020, while imports totaled 2.12mn mt, according to figures from the world steel association. Mexican Iron and Steel Industry Chamber (Canacero) did not disclose information asked by Davis Index at the time of the publication. 

 

Scrap prices

The current export regime in the Latin American region and the COVID-19 pandemic’s impact on raw material trade has caused scrap prices to increase exponentially since Q4 2020, Oscar Montero, planning and global business develop general director at Ternium Mexico said during a webinar developed by Andi titled “The world steel industry and the impact of the COVID-19 pandemic: cases in the US, Mexico, and Brazil,” last week.

 

During the same webinar, Cesar Perez, commercial and marketing director of the long steel division at Gerdau Brazil said that Brazil’s scrap prices had increased by 150pc in February 2021 compared to the same month last year.

 

 

 

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