Domestic rebar supplies in Brazil will be tight for at least the next three months as demand from civil construction has been above expectations and pre-COVID levels, prompting August prices to jump about 10%, market sources said.
According to one mill source, several steelmakers stopped production for almost two months in mid-March to equalize inventories, fearing the impact of the pandemic on local steel demand.
"However, some variables changed the game for long steel demand," he added.
Construction was considered an essential sector, thus was allowed to keep activities. Moreover, stay-at-home policies, low interest rates and government granting of emergency aid of $116 (Real 600) to informal workers and $232 (Real 1,200) to mothers responsible for supporting the family, and other actions have boosted investment in the real state by the financial community and home improvement by citizens.
"The result: huge procurement for rebar and other construction materials in the retail market, emptying stocks down-and-up-stream in a period of low production rates," the source added. "Demand has outpaced supply."
Delivery times have jumped from the usual two to three weeks to four to six weeks, sources said.
"And anticipated payments have not been accepted as well," a buyer said, as he tried to secure material by bargaining on payment terms, without success.
Amid the scenario, mills have been implementing price hikes to new orders ranging 8-11%, blaming the move also on increased costs and tight margins.
"Scrap prices have also jumped in the past weeks due to limited generation and supply, inflating average cost to Real 1,000/mt delivered," one of the sources said.
S&P Global Platts assessed Brazilian domestic 10 mm rebar on Aug. 14 up 9.9% on the week to Real 2,550/mt ($427.26/mt) ex-works, taxes excluded, based on a range of Real 2,500-2,600/mt.
The midpoint value is equivalent to a roughly Real 3,600/mt delivered price within Sao Paulo state, after an average of Real 100-150/mt in freight and taxes totaling up to 21.25%.
Another producer source said the imbalance between supply and demand may last until the end-of the year, with upward trends in price at the same pace.
At least two producers are focused on the north and northeast regions as freight costs to other regions are "impracticable", which has limited flows to the southern portion -- the main consuming hub.
One supplier has been coordinating deliveries based on the average purchased by each client, in order to pulverize sales and not generate speculative buying by some.
Nevertheless, others said that inflated prices for rebar, as well as cement and other key construction materials may start hampering the continuity of projects, "especially when the government aids stop to be granted," one said.
In view of this possibility, mills are also chasing the export market to allocate material in a time of favorable exchange rate and uncertain outlook in the Brazilian market.
"But in 2021 we all hope to see infrastructure projects taking place, something that has not been seen for a long time. Then, it will definitely spur steel demand in Brazil," the first source said.
Production of rolled long steel products in July was up 11% on the year to 809,000 mt and up 20% from June, according to latest data from the national steel association Aço Brasil. From January to July, production of longs retreated 8.5% to 5 million mt.
Domestic sales of long steels were up 19% on the year in July to 783,000 mt -- the highest monthly volume in two years -- and up 15% from June. However, it marked a drop of 1.3% in the first seven months of the year, impacted by lower sales in April.
Apparent consumption of long steel products jumped 13% on the year in July, but lowered 3.1% in the accumulated of the year.
