Latin American industries including steel need to reposition their value chains, reshore and export higher value products to move away from "primarization," which is the reliance on the export of raw or semi-finished materials, Paolo Rocca, president and CEO of the Techint group of companies, said Aug. 6.
To achieve this, companies and countries in the region need to step up collaboration with each other and with counterparts and clients in the west and elsewhere, Rocca said in an opening address to the Brazilian Steel Institute's annual congress in Sao Paulo.
"We have to fight the primarization of our economies and reshoring can help with that," Rocca said. "We need international operations that will allow us reposition with the West. We have to work together with our clients."
Latin American steel mills can generally compete with western and Japanese mills, but this is "impossible" with Chinese steelmakers who are heavily subsidized by a state regime, Rocca said.
The rise of China over the last 30 years with its share in the global economy rising from 5% in 1995 to 35% in 2020 and its current drive to further boost manufactured goods exports, has contributed "significantly" to the primarization of Latin American economies, he said.
Despite investments in recent years to produce higher value-added iron ore and steel products, Brazil, Latin America's largest steelmaker, is still largely viewed as primarily an exporter of commodity products to more industrialized nations.
Mexico's steel industry is however already benefitting from nearshoring accords with industrial partners in the US, including in the car industry, Rocca noted.
But in Mercosur, the common market of South America's Southern Cone, comprised of Brazil, Argentina, Uruguay, Paraguay and Bolivia, "our governments need to try harder," he said. In particular, he pointed to the potential for far greater integration between Brazilian and Argentine steel industries.
Ternium has suffered from lack of collaboration between Latin American steelmakers and governments both with the forced ending of its investment in Venezuelan integrated works Sidor -- nationalized in 2008 and currently at a standstill -- and a Real 5 billion ($890 million) fine imposed by a Brazilian judge earlier this year over an alleged irregularity over an acquisition by Ternium(opens in a new tab) of a participation in Brazilian flat steelmaker Usiminas in 2012.
Market fragmentation growing
The steel industry, in recent times fairly integrated on a global scale, is now becoming more regionalized and divergent, leading to greater protectionism and fragmentation, according to Rocca.
The US, Canada and Mexico, the EU and Japan are all defending their markets strategically via tariffs and subsidies linked to decarbonization goals, although in the EU the restrictions linked to the cost of CO2 are penalizing local mills, he noted.
India, an emerging power, currently accounts for around 8% of the world's steel consumption and this could rise to 17% in 10 years' time but its steel industry has no clear route to decarbonization, Rocca said. Both India's and China's steel industries are based on coal.
"It's very difficult for the world to converge on a common position [on decarbonization]," he said. "The biggest challenge is the articulation with the value chains and decarbonization. Each region and each country plays independently in a scenario of geopolitical restriction."
In Latin America, the route to steel decarbonization is seen hampered by generally stagnant economies with high taxes and interest rates and an overly heavy state presence, which makes it more difficult to find the funds needed for decarbonization.
Per capita steel consumption in the region has risen over the past 15 years from just 100 kg/year to some 119 kg/year at present, around a sixth of per capita consumption in China and a quarter of the developed world average, Rocca said.
Outgoing Brazilian Steel Institute President Jefferson de Paula, CEO of steelmaker ArcelorMittal Brasil, said at the event that even though Brazil's steel industry emits only 4% of the nation's CO2 -- compared to the global steel sector's CO2 emissions level of 7%-8% worldwide -- it still needs the support of the Brazilian federal government to decarbonize.
