Sao Paulo—The startling increase in steel prices in Brazil and worldwide sheds a yellow light on the local consumer goods sector, which will be forced to review its production cycles, costs and, inevitably, end-user prices for 2021.
With the outbreak of the coronavirus pandemic in Brazil in April, many industrial plants and steel plants paralyzed their units in the face of a challenging scenario of quarantine and restrictions.The steel price rally in the spot market began in July, when activities and trade in the country were reactivated. Demand for steel, in particular from the self-construction sector (minor renovations, domestic improvements) and other industries such as white goods, has strongly pushed sales from the distribution and retail chain, while steelmakers have gradually resumed operations. The result was a mismatch between supply and demand, with steelmakers slowly filling the needs of the market. However, steel prices jumped on the month, while the delivery time lengthened and demand remained firm.
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"At this point, industries, especially the automotive sector, are coming on the scene, looking for a large share of this limited supply of steel and forced to pay the same percentage increase applied to the spot market," said a mill source.
Year to date, flat steel prices have risen over 65%, reaching the highest levels seen since S&P Global Platts started assessing the market, in 2010.
Over the past decade, spot prices variations for finished steels during the year were used as a "barometer" by Brazilian steelmakers for the renegotiations of annual contracts of subsequent years.
Additional hikes on spot prices are expected for the first week of January, at about 5% for flats and 12% for longs, according to sources.
Negotiations of annual contracts in Brazil began in November and may last until late January. Adjustments in discussion with automakers and white goods producers were reported in between 35% to 45% on year–the highest levels of the last five years.
Another concern of the industry is the reduced supply of steel and other materials, which has delayed production processes and the renegotiation of contracts with suppliers.
According to sources, there is no predictability currently about the volume of steel available by Brazilian steelmakers, which impacts on the 2021 planning of the offer of goods for the nation.
Earlier in December, the Brazilian association of automotive vehicle manufacturers, Anfavea, voiced concerns of a potential shutdown and lack of cars in the market, due to the short supply of inputs, including steel.
"This is an immediate risk, it is not theoretical, it is already happening in the form of micro-stops", said Luiz Carlos Moraes, president of the group.
Anfavea members usually works with about four months of inventories. In October and November, inventories were below 20 days.
Moraes added that an eventual production stoppage at the automotive sector and the lack of new vehicles on the market would have very bad consequences. In addition to economic losses and the risk of layoffs, there is a risk that the price of cars will rise further.
Prices of new vehicles in Brazil have risen as much as 30% this year for domestic-produced units and up to 80% on imported units.
