Benjamin Baptista Filho, President of Alacero addressing the 47th worldsteel conference in Sao Paulo expressed concern for the strong dependence of the Latin American economy on raw materials exports, as the negative consequences of this become notorious when prices drop.

This is presently observed after the deceleration of Chinese demand. In his own words, “this could mean the end of the golden years for Latin America”. Hence, “industrial sector development is the way to stop the regional dependency on raw materials”, he added.

Regarding the steel industry, Benjamin Baptista evaluated that, in a context of global overcapacity, regional capacity in Latin America is under control and has even stagnated since 2010 because of an increase of imports that, in the case of some countries, he described as a real ‘tsunami’.

The fact that concerns him the most is that this increase in imports is dissociated from domestic demand growth. “The situation is worrying. Imports supply 28% of steel domestic demand and almost a quarter of these shipments come from China. Many products arrive to Latin America under unfair trade conditions and complicate the competitive situation of local producers.” In 2013, demand will grow just 1.5%, a much lower figure than a 4% forecasted just 5-months ago in April.

In turn, Daniel Novegil, CEO Ternium focused on the deindustrialization process that marked the last decade in Latin America and on its consequences on regional economies. “Compared to economies such as South Korea or China, where the manufacturing sector represents 30% of the GDP, in Latin America it represents just 15% of the regional GDP.” (for 2012)

“Between 2005 and 2012, metal-mechanical products exports from Latin America to China remained stable, worth around US$4bn. However, imports from that country to the region multiplied 3.5 times, from $21bn to 86bn. Steel imports figures are even more dramatic. Imports grew 17 times between 2005 and 2012”, said Novegil.

During his presentation, Mr Novegil emphasized the role of investments as the engine that triggers infrastructure improvement and the formation of an industrial base, which, in turn, make prosperity and social development possible.

Novegil compared Latin American investments growth during the last decade to that of some other economies. Between 2000 and 2012, gross capital formation in China (durable goods and construction investments) increased its share from 35% to 48.4% of the national GDP. In South Korea, it remained stable at levels of 30%, while in Latin America, it never surpassed 20 − 22%.

André Gerdau Johannpeter, President & CEO Gerdau, specifically referred to the challenges of Brazil, the host country and the largest steel producer of Latin America. Among these challenges, he highlighted the tax burden. “If we consider rolled steel production costs before taxes in Brazil, this country is more competitive than Russia, Germany, USA, Turkey and even China. However, when international market taxes are taken into account, Brazilian costs grows 54% and Brazilian competitiveness falls behind all the other countries.”, the executive explained. He also pointed other threats such as the high exchange rate of the Brazilian Real, high interest rates, and high energy and transportation costs due to the lack of adequate infrastructure.

Panelists shared the same conclusions. A clear deindustrialization process has been affecting the region for years and it is necessary to reverse it. In the short and mid-run, global overcapacity, especially in China, is generating record high-deficits in the direct and indirect trade balances of steel. Low investment levels can be a menace. Good perspectives are linked to the regional demographic and economic growth potential. Low steel use per capita is both a consequence of the above and an opportunity for the region.

“The steel industry has overcome even more difficult situations before. I am confident that we will go through the current scenario and we will emerge ready for a more promising future. Latin America has a great potential.”- concluded Mr Baptista.