Few people are aware that Latin America is one of the world’s foremost producers of crude steel. The region’s largest producer, Brazil, accounted for approximately 56% of the region’s output in 2021 with Mexico following closely behind with an output of 30% in the same year. In total, the production of crude steel in Latin America was estimated at approximately 65.04 million metric tons.
These numbers point to an impressive resilience associated with the sector – despite Covid significantly increasing the costs of exports required to refine steel, the industry managed to remain buoyant. Indeed, data published last year revealed that 2021 saw a more than 30% increase in production compared to 2020 driven by a better economic performance of countries in the region, and especially by consumer sectors such as infrastructure, civil construction and engineering.
Although it’s good economic news that steel production has now returned to pre-pandemic levels, challenges remain that could hamper more significant longer-term growth.
A former energy executive in Argentina explained, “There are several factors that are a cause for concern when we think about the development of Latin America’s steel production industry. Chief among them is the lack of foreign exchange required for the import of materials which are critical for production. Second, there are issues around energy availability – steel production is an extremely energy-intensive process.”
“Chief among the [concerns] is the lack of foreign exchange required for the import of materials which are critical for production. Second, there are issues around energy availability – steel production is an extremely energy-intensive process.”
A former energy executive, Argentina
Indeed, Argentina is a case in point. Since June, Buenos Aires has placed restrictions on the consumption of natural gas and electricity – both essential for steel production. Political considerations are also a factor – congress is likely to come under significant pressure from Argentina’s powerful steel union, long disgruntled over perceptions of low salaries and wages remain stagnant despite soaring inflation. If unions vote to strike over the pay dispute this quarter or next, steel production will grind to halt overnight.
Despite rapidly changing geopolitical dynamics, Latin American steel companies have nimbly responded to the challenge of a significant recovery in consumption and supporting regional trade. The Latin American market is evolving positively in its path of normalisation, although imports continue to represent a risk for production and the regional market. Steel continues to be fundamental for the recovery from the health and economic crisis.
A director at one of Mexico’s largest steel conglomerate’s takes a more negative view, “The impact of the war and, above all, the uncertainty of how long it will last means that the estimates for next year are not encouraging and there is pessimism as to whether it will be possible to come back towards the end of 2023-2024.”
“The impact of the war and, above all, the uncertainty of how long it will last means that the estimates for next year are not encouraging and there is pessimism as to whether it will be possible to come back towards the end of 2023-2024.”
A director at one of Mexico’s largest steel conglomerate
Geopolitics is affecting production, Washington now looks likely to lift restrictions on Brazilian steel due to the conflict in Ukraine. Indeed, for months, Brazil’s steel industry has been calling on the state department to seek the resumption of talks with US authorities to lift the so-called section 232 measures which limit shipments of semi-finished products, mainly slabs, to 3.5 million tons per year.
Encouragingly, across Latin America, investments are being made to boost steel production output including the scrap-fed electric arc furnace sector including a mill expansion in Colombia, the restart of another mill in Brazil and equipment investments by Peruvian steelmaker Aceros Arequipa.