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Financial News: BRAZIL: Steel Sector To Grow Less, But Exchange

BRAZIL: Steel Sector To Grow Less, But Exchange And Price Compensate

06/13/2018 - 19:01:00 (RTTNews)

(RTTNews) - Following the downward revisions of the growth of the Brazilian Gross Domestic Product (GDP), combined with the impact that the truckers' strike may have on economic activity, the Instituto Alo Brasil (IABr) and specialists admit that the steel industry is expected to grow less than expected in 2018 after an optimistic start to the year.

However, the appreciation of the US dollar against the Brazilian real should keep steel exports profitable, as well as make room for further adjustments of the price of the commodity in the domestic market, which may offset the cooling of domestic demand for the commodity.

IABr's current forecast is that crude steel production in Brazil should grow 8.6% in 2018, to 37.315 million tons, while domestic steel sales are expected to increase by 6.6%, to 18.012 million tons. However, the president of the institute, Marco Polo de Mello Lopes, acknowledges that the data can be revised down soon.

"I think we're going to have to take a look at our projections. We had the issue of section 232, the truckers strike, one thing after another," Lopes said, noting that steel exports to the United States should be made in quotas, due to the activation of the so-called section 232, which should reduce sales to the country.

For the steel analyst at Coinvalores, Sabrina Casciano, with the current situation, steel sales should at least lose momentum.

"In the face of recent events, we expect a slowdown in the growth of the sector. The sector is not going to get negative again, but it may lose some of the momentum that was waiting," she said.

According to the IABr, the truck drivers' strike led to a loss of R$ 1.1 billion in the sector, mainly due to the 10 steelworks shutdowns and the smothering of 17 blast furnaces in Brazil, with a decrease in production capacity due to the lack of inputs. According to employees, one of the blast furnaces smothered was that of Usiminas, which may have some impact on the company's second-quarter results.

The strike also hit one of the steel-consuming sectors, the automotive industry. According to data from the Brazilian Association of Automobile Manufacturers (Anfavea), total vehicle production - which includes automobiles, light commercial vehicles, trucks, and buses - fell by 20.2% in May compared to April. Total vehicle licensing also fell on the same comparison basis (-7.1%).

Anfavea chairman Antonio Megale admitted earlier this month that the entity should review its projections for the year in July, after the June data closing. However, he believes that it should be possible to repair the May losses between two to three months, as the production lines returned quickly with the end of the strike. Projections released in January predicted that total vehicle licensing would grow by 11.7% in 2018. On production, the expectation was a growth of 13.2%.

Faced with these impacts, economists reduced the forecast for GDP growth in 2018 for the sixth consecutive time this week. The estimate for the growth of the Brazilian economy in 2018 went from 2.18% in the previous week to 1.94%. A month ago, the forecast was that GDP would grow 2.51% in 2018.

For Citi analyst Thiago Ojea, what is happening with the projections is more "an adjustment of expectations" after a "reality shock" brought about by the strike, although the economy has already shown a slower recovery since before the shutdowns. "There may have been exaggerated optimism before," he said, noting that so far the steel industry figures remain positive.

In the year to April, crude steel production in Brazil increased by 4.1% compared to the same period of last year. Already, total steel sales in the country rose even more on the same basis, 14.7%. Citi, for the time being, is forecasting that sales of flat and long steels should grow 6% this year compared to last year, similar to the IABr projection.

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