Chinese steel threatens Brazil and the rest of Latin America – 04/15/2024 – Market

Ten million tons of Chinese steel flooded Latin America last year, a record that threatens the regional steel industry: “Closing Huachipato would be an atomic bomb,” said Carlos Ramírez, a worker at the main Chilean steel factory that is suffering from strong competition from China .

Huachipato, in Talcahuano, 500 km south of Santiago, announced the rapid suspension of operations, overwhelmed by the avalanche of Chinese steel taking over the markets and which is sold in Chile at 40% cheaper than local steel.

The measure, which includes a request for the government to impose a 25% tariff on steel imports, threatens 2,700 company workers and another 20,000 people who depend on it.

In Brazil, the largest steel producer in the region, there is also concern. Last year, imports from China grew 50% and production fell 6.5%, according to the Instituto Aço Brasil.

Gerdau, one of the largest steel companies in the country, has already laid off 700 workers. The last ones, in February, were disconnected from the Pindamonhangaba plant, in São Paulo, due to the “challenging scenario faced by the Brazilian market in the face of predatory conditions for importing Chinese steel”, said the company, which did not respond to AFP’s contacts.

Brazilian steelmakers are also asking for a 25% tariff, like the one Mexico imposed on 205 types of steel products, in line with tariffs imposed by the United States, its main trading partner.

Steel represents 1.4% of Mexico’s GDP and generates 700,000 jobs. 77.5% of exports go to the United States, according to official data.

China “very present”

Over the last two decades, China has increased its share of the global steel market from 15% to 54%, according to Alacero (Latin American Steel Association).

In Latin America, imports grew in 2023 by a record 44%, exceeding 10 million tons. Two decades ago, China exported just 85,000 tons of steel.

“China is very present in Latin America”, laments Alejandro Wagner, executive director of Alacero.

“No one is against trade between countries, but there is always talk of fair trade”, adds the executive to AFP.

Concern about excess capacity in the Chinese steel industry has increased in recent years, given the reduced dynamism in its construction sector, which releases more products for export.

On a recent visit to China, US Treasury Secretary Janet Yellen expressed concern about “excess” Chinese production and assured that the United States “will not accept” the world being flooded with Chinese goods sold below price.

In 2018, the United States imposed an additional 25% tariff on Chinese steel.

Painful “social earthquake”

Closing Huachipato, owned by the private group CAP, would deal a serious blow to Talcachuano, a port in southern Chile that has been its main source of livelihood for 70 years and where it plays an important social role.

From its steel was born the Huachipato football club, current Chilean champion and which beat Grêmio 2-0, last week, in the Copa Libertadores.

Ramíres has been a worker linked to this company since he was a child. First, as a player in the lower divisions; then as a professional and once retired from the sport, as director of one of the company’s unions.

“What we are experiencing is very painful,” said the 56-year-old, who traveled to Santiago alongside other leaders to expose the “social earthquake” that is approaching.

In a last-ditch effort to remain competitive — after losses of US$1 billion since 2009 — Huachipato asked the Chilean Anti-Distortion Commission for a 25% tariff on imported steel.

The Commission found “sufficient evidence to support the existence of dumping” — selling a product below cost — by China and recommended a rate of 15%, considered “insufficient” by Huachipato.

“We are not asking for subsidies or safeguards. Huachipato has the ability to be profitable in a competitive environment,” said its manager, Jean Paul Sauré.

For the government of leftist Gabriel Boric, Huachipato is a “strategic” company. Huachipato specializes in essential inputs for mining: steel bars and spheres for grinding copper, of which Chile is the world’s largest producer.

During the pandemic, when world trade was interrupted, “it was Huachipato that maintained the country’s steel supply”, said Economy Minister Nicolás Grau.

The decision to impose protective measures is not an easy one. Chile signed a Free Trade Agreement with China in 2006, which exposes it to possible trade retaliation.

In Latin America, steel generates 1.4 million jobs, which are highly specialized and difficult to convert.

The short-term impact on the region will depend on China adopting measures to reduce its “excess” production and, at the local level, initiatives aimed at restricting the entry of steel, José Manuel Salazar-Xirinachs, executive secretary, told AFP from ECLAC (Economic Commission for Latin America and the Caribbean).