Latin American Industry Facing Challenge of Low Consumption
Latin American steel association Alacero said that Latin America is facing the worst crisis in its modern history and is in a moment of transition, showing signs of economic reactivation, but at the same time of difficulty in controlling the pandemic. The impact of the Covid-19 crisis is strongly felt in steel consumption, which decreased 30% in April compared to the same month last year and 11% year to date. The biggest drop occurred in Argentina, of 83% compared to April 2019. However, one of the indicators of the recovery is the production of raw steel in May, which, although it registered a reduction of 29% in comparison with May of last year, rose 8% in comparison with April of this year, basically thanks to Brazil. In May, raw steel production fell by 17% in the year to date. By comparison, the global steel industry reduced its raw steel production by 5.2% up to May 2020, compared to the same period in 2019, while China's production increased by 1.8%. In comparison with last month, the world registered an increase of 9.1%, driven by China, which showed an increase of 8.5%. It said “We are entering a transition stage. The short term trend is not yet clear, as we see some positive signs, while negative ones remain. Due to the economic downturn, it is estimated that world steel demand could fall 6.4% in 2020 and recover 3.8% during 2021. This reduction is mainly due to the generalized contraction in all countries, except for China, expected to grow 1% in 2020.”
During the first quarter, imports as a percentage of consumption reached 35%, whereas in April they rose to 41%. Local production in the first quarter, in turn, represented 81% of consumption, but in April only 74%. This substitution of production for imports in the current crisis conditions should be a red flag signaling governments to address this problem. Alacero said “We must warn that now, more than ever, it is necessary to avoid unfair imports, such as those coming from China, and to encourage domestic consumption. It is a time for governments and industry to strive to create conditions that will allow us to come out stronger after this slump, in terms of developing infrastructure and value chains and strengthening the industrial fabric, which generates employment.”
Latin America is struggling because it does not have sufficient economic capacity to handle the public health crisis and some governments have not taken all the necessary actions to mitigate the difficult situation. There are examples of countries, like Singapore, that can be considered models to be imitated, because in addition to using technology and dedicating resources (20% of GDP) they have implemented fiscal measures such as the temporary suspension of tax levies (VAT, individuals and legal entities), support for companies' payroll to avoid layoffs, changes in health disability regulations with a greater contribution from the government, direct help to micro-businesses and the informal economy without the obligation to pay back loans, among others. In these countries, economies showed signs of recovery more quickly.
Source : Strategic Research Institute