Low steel purchases, inventories limit Brazilian year-end discounts, but 2023 price hikes loom

Consumers' low steel purchases and inventories in Brazil are preventing a wave of end-of-year discounts and supporting the announcement of increases for early 2023, sources said.

"I believe prices went down enough for 2022," said a flat steel distributor source, who already received price hikes announcements for the start of 2023.

In the survey of Brazilian producers, distributors, traders, and end-users, about 50% of respondents to the monthly sentiment survey of the Brazilian steel industry the S&P Global Commodity Insights carried out said prices could remain rangebound in December, while 34% of respondents were seeing potential discounts to expedite trade.

The price index reading was at 54.6, up 2.81 points from November. Readings above 50 are generally interpreted as bullish and below 50 bearish, with a reading of 50 suggesting no change in sentiment

Brazilian domestic hot-rolled-coil prices plunged 33.6% to Real 4,450/mt ($836.47/MT) ex-works Dec. 9 from the 2022 peak of Real 6,700/mt EXW in May, according to Platts assessments.

For rebar, domestic prices retreated 15.7% in the same period to Real 4,300/mt EXW.

In a Dec. 15 meeting with investors, Brazil's CSN confirmed a 10% price hike on flats and longs prices effective Jan. 1 to keep an import parity premium of 12%.

Other steelmakers were reportedly targeting price adjustments of 5%-10%, sources said.

"Demand is pretty weak, but inventories are too low...so, if demand picks up just a bit, the chain will be forced to restock, thus giving room for price hikes," another distributor said.

Market sentiment is that there is a more favorable outlook for the long steel segment, with works still running in the country and the prospect of new infrastructure projects and expansion of social housing programs.

Brazil's civil construction sector is expected to grow 2.5% in 2023, after recording a growth of 17.7% in the 2021-2022 biennium, according to CBIC, the national chamber of the construction industry.

"The automotive industry, on the other hand, seems to have already hit rock bottom. Yellow goods and agribusiness should remain strong, but [the] white line is still a question mark," said Luiz Fernando Martinez, CSN's commercial director.

Out of the monthly survey, views on inventory levels were with a majority of 67% of the respondents expecting stability through December at lower levels. The inventory index reading was at 56, a drop of 2.53 points from the previous month.

"I'm buying only the necessary; there's much uncertainty to incentivize purchases at this point, plus the year-end seasonal lull," one steel consumer said.

The views regarding prices of domestic and imported raw materials were mixed for December, depending on the product, with 47% of the respondents expecting stability, 33% seeing additional declines in scrap and pig iron, and 20% expecting met coal/coke prices to keep at elevated levels. The overall index was at 57.33, up 3.19 points from November.

Regarding steel production, 65% of the participants predict stability in the volumes to be produced in the last month of the year. But 33% of respondents signaled possible reductions for the month. The index reading was at 56, down 2.52 from the previous month.