INTERVIEW: Alacero chief calls for CBAM review to prevent trade diversion

With the influx of Chinese steel reshaping Latin America's value chain in recent years and the impending implementation of the European' Carbon Border Adjustment Mechanism, pressure on local producers is mounting. In a recent interview with Platts, Ezequiel Tavernelli, the executive director of the Latin American Steel Association, or Alacero, discussed the significant challenges confronting the steel industry.

Tavernelli highlighted that crude steel production in Latin America declined by 3.6% in 2024, marking the third consecutive year of decreasing output, with notable drops in Mexico, Argentina and Chile. He expressed concerns about the effectiveness of CBAM, arguing that it could lead to trade diversion and unintended economic consequences. Follow the full conversation:

Platts:In terms of decarbonization, we haven't heard much about this vision or concern from Latin American steelmakers, but countries like Brazil would be among the most affected by the new CBAM rules. Have you discussed these new rules and how Alacero should position itself in this context?

Ezequiel Tavernelli: There is currently a reformulation of the CBAM. Many developed countries have provided subsidized loans to their industries to adapt and make the necessary investments to meet these measures. This is something no Latin American country can do; we cannot allocate billions of euros or dollars at subsidized rates to improve our carbon footprint, which has already caused significant disruption to the market.

Today, the world generates approximately 1.9 tons of CO2 per metric ton of crude steel, which is roughly the global average for carbon footprint. China is well above this average, while Latin America is well below it.

We believe that CBAM is not an appropriate measure and will lead to trade diversion, resulting in surcharges that will ultimately affect other countries and regions. Latin America, despite the trade defense measures implemented so far, has not been able to contain unfair imports as effectively as developed countries. This potential trade diversion will significantly impact us if it occurs.

What we are observing is that the CBAM is currently undergoing a process of rethinking and reformulation. European industries themselves recognize that this proposal may be somewhat exaggerated and overly burdensome.

There is no doubt that the CBAM would be disruptive and serious for our sector, and we strongly disagree with it, calling for its review. Europe is beginning to realize that its insular approach imposes a very high cost, especially when considering the substantial investments required. This has also negatively impacted them from a cost perspective.

In addition, we believe that the CBAM could generate serious trade disruptions, not only for Latin America but for many other countries as well. What we need to focus on is reducing the entire carbon footprint in a coordinated manner, with reasonable and achievable objectives. We should continue investing in technology, as Latin America is doing with its new investment processes in steel, particularly with electric blast furnaces. That is the way forward.

Platts: You mentioned the impacts on the region's value chains. Which segments are affected?

Tavernelli: From cars to refrigerators, the value chains of the entire Latin American metallurgical industry have been seriously affected recently, primarily due to unfair competition, not only from China but also from several Southeast Asian countries, many of which have Chinese investments. There is a significant excess capacity in the region, with investments projected to exceed 100 million metric tonsof excess capacity originating from these locations over the next 15 years. This will generate even more pressure, which is our main concern.

Today, global production is approximately 1.8 billion tons, with China producing more than half of that -- over 1 billion tons. China's current capacity is estimated to be between 1.15 billion and 1.40 billion tons. With ongoing investments, we can expect a volume increase of at least 10% beyond what is currently produced in China and Southeast Asia.

Despite China's excess capacity of 136 million tons in Latin America, ongoing investments could mean that China alone will have more than 200 million tons of excess capacity. This excess capacity suggests that current production is still linked to domestic consumption. If domestic consumption continues to decline, the excess capacity will only grow. To put this into perspective, this excess capacity is more than double the total steel consumed in Latin America, which is around 73 million tons per year. Thus, the 100 million tons or more projected today could potentially increase two to three times.

Currently, more than 60% of the antidumping cases filed globally in the last 10 years have involved China and other Southeast Asian economies. Therefore, it is not just Latin America that is raising concerns; it is a global issue that is already being addressed.

Platts: How do the new US 25% tariffs affect this scenario?

Tavernelli: US tariffs are the culmination of a problem that has persisted for over 15 years. An industry in a country with a centralized policy of subsidies and unfair competition from companies that undoubtedly harm the industrial fabric of their competitors can no longer compete. This scenario is part of the deindustrialization process affecting all Latin American economies.

Latin America has lost several points of its industrial GDP, resulting in the loss of jobs that, within our value chain, are among the best-paid, highly developed, and high-tech positions. It is not just about having more jobs, but about creating the most valuable and sustainable employment opportunities, which is what we seek in Latin America. Every time we discuss tariffs, we are emphasizing the importance of collaboration. We believe that the solution lies in working together within the region.

Latin America is a highly capable region, with significant investment, cutting-edge technologies, an optimal energy matrix and the lowest carbon footprint in the world. More than 60% of its energy generation comes from renewable sources, a feat not matched in other regions. We possess the resources, energy, investment, capacity, and, above all, the talent of our people.

Latin Americans have tremendous skills in producing high-quality, well-finished and high-value products. Our region currently faces significant challenges in the global context, but it also can become the best substitute for the value chains that the United States and the industries of Southeast Asia and China currently dominate. Latin America must position itself as a strong alternative today, starting with Mexico, which is clearly the leader, but also including Brazil, Colombia, Chile and Argentina, all of which have enormous potential.

Platts: But is there an ideal approach for Latin American economies?

Tavernelli: That is something each country or common market must define. What we ask for is protection; we want nothing more than to compete. Latin America has competed very well and has exported successfully; the US and Mexico are major exporters and serve as great examples of industrialization. However, we face a problem: in recent years, the defense processes — such as safeguards and antidumping measures — in our region have not been as effective as those in other regions.

There is a very technical study on steel that is nearing completion, but we have already provided some preliminary data on apparent consumption over the last 12 years, which shows an increase in apparent consumption across all regions. This rise in consumption is due to a slight uptick in steel consumption in recent years. However, this consumption in developed countries, such as the US and the European Union, has had no impact on the increase in Chinese imports.

In other words, the tariff, safeguard and antidumping measures implemented by advanced countries have been effective in preventing a rise in the percentage of Chinese and Asian imports in their markets, which could have negatively affected the growth of apparent consumption. In fact, 100% of this growth was captured by these economies in their apparent margin of growth consumption, while in Latin America, 55% was consumed by Chinese imports. Despite the measures implemented in each country, they have not been effective.

It is not for us to determine which measures are best, but it is clear that we need to strengthen our trade defense measures, as we are being targeted by a subsidy strategy.