Steel production in Latin America decreased by 34% during April 2020
According to the Latin American Steel Association (Alacero), the region's steel production totaled 3.55 million tons in April 2020, down 34% compared to the same period last year and falling 14% in the accumulated up to the fourth month of the year, reaching 18.3 million tons. In April, crude steel production via the BOF route fell by 22% compared to March (3.56 Mt), a figure not seen since 2009.
This drop is explained by the effects on the industry of the economic crisis induced by the coronavirus (Covid-19), reflecting the generalized low demand and the suspension of operations as a safety measure. Alacero estimates that this situation will continue until the third quarter of 2020 and will be the profile of the industry in the short term.
For the production of laminates, the fall was 32% compared to April 2019, while the accumulated fall was 10%. The effects of the pandemic have had a greater impact in Argentina and Brazil with a fall of 73% and 37% respectively. The volume of laminates for the region is -2.9 million tons, a value that has not been recorded since January 2009. Meanwhile, apparent steel consumption in March fell by 9% and accumulated consumption fell by 4%. With this, the new consumption projection for the year is a drop of 16.5% (54 million tons).
To balance supply and demand, some plants applied the strategy of stopping operations in their blast furnaces. During April and May, they stopped seven blast furnaces with a combined capacity of almost 7 million tons. With this, capacity utilization at Latin America level is 42% - Brazil (43%), Mexico (60%), Argentina (18%) - as of April 2020. Thus, there is a capacity to produce up to 7.9 million tons per month, without considering Venezuela.
Globally, production in April 2020 fell by 13.5%, while China grew by 0.2%. In March, global records fell by 7% and China rose by 8%. It is worth noting that, unlike Latin America, China is growing again due to its early exit from quarantine and the economic stimulus it is implementing. Alacero's CEO, Francisco Leal, commented that "the risk is that China, which began its recovery, will seek to place its surplus through exports, as it has been doing, generating greater damage to Latin America's industry and delaying or limiting the region's recovery, which will be necessary for the coming months.
That is why it is believed that Latin America's recovery and openness will be differentiated, and that the region will probably be one of the last to normalize its economic activity. "The Latin American case reflects what is happening in the entire world with the exception of China, which has experienced a V-shaped recovery," explained Leal.
In view of this, Alacero believes it is urgent that governments and industry reflect on and implement strategies to have a robust steel industry, high integration with its value chains, defense of its domestic markets, and first-class products and services for its customers.
Leal warned of the financial risk related to operating the industry at low capacity utilization for a long time. "Our industry is a capital intensive and high fixed cost activity that requires working at 80% of its capacity to ensure a modern and efficient production plant, as well as to guarantee the permanence of its labor force," he concluded.