BRAZIL STEEL CONGRESS: Participants voice moderate optimism, green steel opportunities

The economic agenda and long-term opportunities dominated discussions as top executives gathered in Sao Paulo for the Aço Brasil Congress 2022 Aug. 23-24.

Representatives of the national steel industry saw good prospects for the sector even though they said the current and medium-term market scenarios were volatile, unstable and uncertain. There is an urgent need for measures related to competitiveness, including the reduction of the “Brazil Cost” and greater public and private efforts toward energy transition and decarbonization, they said.

Market, economic development

In the last 10 years, the Brazilian steel sector has invested more than Real 158 billion in new and expanded installations and is investing another Real 52 billion between 2022 and 2026. The initiatives are hoped to increase the country’s per capita steel consumption, which has been stagnant at 100-120 kg/year for a decade.

“The indicator of steel consumption per inhabitant is monitored by the UN because it is directly related to the economic performance of countries. Doubling up is a bold goal. Last year was an unusual year. We need public policies to reach these numbers,” said Gerdau CEO Gustavo Werneck.

Sergio Leite, chairman of the board of Usiminas, said increasing steel consumption is dependent upon the country’s GDP growth and heavy investment in infrastructure.

“Civil construction is another lever, and we have an important deficit in the country. Finally, the automotive sector has the potential to become an export hub,” he added.

For Marco Polo de Mello Lopes, the executive president of Aço Brasil Institute, the production idle rate proves that the problem in the industry is not one of supply, but of demand.

“We need to export to improve the level of capacity utilization, which today is 68% or 69% and everyone knows that it should be above 80%,” he said.

“This year [2022], even if we see a drop in the apparent consumption of steel, we will have one of the three or four best years of the last decade.”

Short-, long-term challenges

The Brazilian automotive industry, which uses 24% of steel consumed in the country, experienced 40 days of inactivity year to date, with 24 plants halted, according to Marcio Leite, the president of Anfavea.

“We are brothers, we have situations in common. The automotive and steel sectors are experiencing the most disruptive moment in history since their creations,” he said.

For him, the sector faces its biggest challenge with the issue of the global shortage of semiconductors. Leite sees the scarcity of this material as an opportunity for production in Brazil, as the country has the machinery and equipment necessary for its development.

The raising of vehicle prices in the past years was harmful as it contributed to the aging of the country’s vehicle fleet, with people beginning to buy more used and old cars than new ones — going against Brazil’s decarbonization goals, he said.

Moreover, he sees emerging markets as Brazil far from having the necessary structure to support a strong adoption of electric cars, but there are opportunities to focus on exports instead.

“Brazil is the seventh largest producer of vehicles, eighth in consumption, but the 30th in exports.”

Jorge Gerdau, the chairman of Gerdau’s board of directors, said the “Brazil Cost” represented 16.2% of the cost of domestically-produced steel. This ultimately harms the export-competitiveness of the material, mainly because in other countries this cost can reach almost zero.

In terms of infrastructure, while the logistics cost from the Southeast to the Northeast is around $100/mt, Chinese suppliers can ship steel to Brazil at $20/mt freight cost.

The Aço Brasil Institute brings together 12 local business groups that manage 31 production plants in 10 Brazilian states. The annual billing of the sector is close to Real 200 billion, with around Real 40 billion paid in taxes.

Decarbonization, energy transition

“Until now, the industrial and steel sectors have paid a good part of a bill that was not ours. And the numbers show that the national steel industry accounts for 0.15% of global carbon emissions,” Gerdau’s Werneck said.

He calculated that it would cost $40/mt for decarbonizing the Brazilian steel industry.

“In 30 years, we will have an annual cost to the sector of Real 7 billion. The math is not accurate. The balance sheet of companies does not pay for this.”

For Leite, the biggest global challenge at present is energy security, with a search for surplus and cheap renewable energy — an area in which Brazil has taken the lead with the expansion of solar and wind sources and with the potential for offshore wind energy.

Marcelo Chara, Ternium’s CEO in Brazil, also sees greater use of natural gas as a potential transitory solution for decarbonizing the steel industry — if there were infrastructure/ducts developed for distribution of the associated natural gas from subsalt fields.

In addition, he sees potential for duplicating the use of scrap in steel production.

Wieland Gurlit, senior partner at McKinsey & Co., said other mechanisms such as a Carbon Border Adjustment Mechanism may arise in other regions.

Brazil has the opportunity to produce key raw materials that will be in high value and high demand for the steel decarbonization: green HBI, green pig iron and green biocarbon.

“Even under optimistic assumptions on Green H2 availability in Europe, offshoring DRI/HBI production to Brazil would be likely more economic,” Gurlit said.

— Mayara Baggio