Stainless Steel Me

The South American steel industry has not escaped the global economic crisis. Demand for crude steel and steel products has fallen sharply in tandem with the global manufacturing slump and the cooling of China‘s once red-hot economy. After years of growth, Latin America╒s crude steel production was flat at 67.2 million metric tons in 2008, compared to 2007, according to the Latin American Iron and Steel Institute.

The region managed to increase steel exports to China by 9 percent to 835,000 metric tons last year, but fourth-quarter results by major South American producers such as Gerdau show a dramatic market deterioration. Steel production in Chile, Colombia and Venezuela fell last year, and Brazilian ferroalloy exports dropped 51 percent to $88.9 million in December compared to a year earlier.

ArcelorMittal, one of the world‘s largest steel producers, said the global collapse in real estate was the main cause of the drop in steel consumption. Brazilian production fell 45 percent in the last three months of 2008.

“In the fourth quarter of 2008, crude steel production was down 28 percent in Japan, 39 percent in Europe, 45 percent in Brazil, 46 percent in Russia and 52 percent in the United States,“ ArcelorMittal CEO Lakshmi Mittal said last month.

Slumping demand has hit nickel prices, a key ingredient in stainless steel. Prices on the London Metal Exchange have dropped about 80 percent to below $10,000 a metric ton from a record high of $51,800 in May 2007.

Brazilian steel producers, including CSN and Usiminas, expect a slow return to demand, especially in flat steel used for appliances and vehicles, as the U.S. economic stimulus plan begins to take effect. A small rise in new car sales in Brazil in January could signal steady domestic demand, while Brazilian government aid for carmakers and plans to promote infrastructure spending and homebuilding could lift the steel industry.

Several major investments are still on course. Mining company Vale is investing $3 billion in a new rolling mill in northern Brazil. Brazilian President Luiz Inacio Lula da Silva and Venezuelan leader Hugo Chavez signed an agreement in October to build a $1.8 billion steel plant in Venezuela’s Bolivar state.

But the near-term outlook is grim, and the Latin American Iron and Steel Institute is worried about overproduction in China amid weak demand.

“We maintain our view that the outlook for the Brazilian economy is worsening and that the steel industry isn‘t very different,“ Brazilian brokerage Link Investimentos said in a report.