Brazil set to introduce import quotas, raise import tariff to 25% on range of steel products

Brazil's Ministry of Development, Industry, Trade and Services has proposed to introduce import quotas and raise import taxes to 25% on 11 rolled steel products categories after record imports over the past year took up close to 20% of the domestic market, impacting mills' performance.

The higher tariffs will come into force only after the quotas have been filled, according to a ministry spokesperson. The new import regulations are expected to be effective within 30 days following approval by Brazil's tax authorities and the country's partners in the southern cone common market Mercosul.

The new system will be valid for 12 months and the market will be monitored during this period, the spokesperson said.

This is understood to be the first time Brazil has operated a steel import quota system.

Import taxes will be raised to 25% - from previous levels of between 9% to 12.6% - on certain flat rolled steel products, including coated and galvanized products, wire rod and tubes used in the oil and gas industry, according to a statement issued late April 23 by the ministry's foreign trade chamber Camex.

The decision follows a request by Brazilian Steel Institute IABr, representing all the nation's steelmakers, for the import taxes to be raised in line with 25% import tariffs operated by the US, recently also adopted by Mexico, and protections in place in the European Union.

Brazilian steelmakers have for months lobbied government for protection from what they have described as a flood of low-priced imports, particularly from China, which has accounted for around 90% of import tonnage in some flat product areas in recent months.

Import tariffs are to be raised on product categories where 2023 import levels were more than 30% higher than the average of purchases between 2020 and 2022, the ministry spokesperson said.

Requests by IABr and also by Brazilian Tubemakers and Accessories' Association ABITAM for import tariffs to be raised on four other categories of steel products, including bars, sections and tubes, will be subject to further analysis by Camex.

The ministry spokesperson said these categories require more market study due to price fluctuations.

An IABr request for taxes to be raised on imports of flat-rolled stainless steel products, stainless bars and tubes of up to 229 mm diameter has been rejected, according to the Camex document.

A request by major steelmaker Companhia Siderurgica Nacional for import tariffs to be raised on certain coated steel products less than 0.5 mm thick, including tinplate, was rejected.

Quotas

The quota for imports of aluminum or zinc-coated flat rolled products 600 mm or more wide (category 7210.61.00) has been proposed at 467,676 mt, after which the 25% import tariff will become effective, according to the Camex document.

The following quotas have been proposed for other major importing categories: flat rolled products, including galvanized (category 7210.49.10) 470,125 mt; cold flat rolled products (category 7209.16.00) 177,356 mt; cold flat rolled products (category 7209.17.00) 124,323 mt; hot rolled flat products (category 7208.39.90) 113,826 mt; wire rod (category 7213.91.90) 158,929 mt.

Impact on prices

Increased price volatility is likely to be seen as the quota approaches its end, as has occurred in quota systems operated in other locations, including the US, market sources consulted by S&P Global Commodity Insights said April 24. It was considered that domestic moves to increase prices could ensue.

"The quota for Galvalume (about 400,000 mt) seems adequate, as we had about 600,000 mt imported in 2023," one trader commented. "But the HRC quota seems low: with some imports from big players, like Amazon Aço; Aço Cearense, and it's done: we may see domestic prices going up in H2."

One mill source said: "My guess is that mills will try to push prices as soon as possible, maybe next week. We are facing some scarcity now and difficulty to supply everyone, so an early price increase attempt is very likely."

The ministry spokesperson countered, however, that a change in prices due to the announcement was unlikely. "Technical studies show that the measure will not impact consumer prices, or the prices of downstream products in the production chain," the spokesperson said in a note. "During the 12 months, the government will monitor market behaviour."

"Government expectations are that this decision will contribute to reducing idle capacity in the domestic steel industry."

According to IABr, mill capacity working levels have been a little over 60% for the past year, rising to 65.1% in Q1.