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Brazil seeks global role for its steel industry

Blessed with abundant raw materials, cheap labor and top-notch technology, Brazil is looking to become a major player in the global steel industry with the help of some deep-pocketed foreign friends.

Brazil's steel industry is racing to keep up with demand in China, investing billions of dollars to increase its production capacity by more than 30 percent in the next four years. While the bulk of the financing is expected to come from Brazil's own steel industry and local banks, international steel firms are also getting in on the action to guarantee a steady flow of re-sources back home.

Leading the way are global heavyweights like the Baosteel Shanghai Group of China and Arcelor of Luxembourg, both of which are still planning to build blast furnaces to churn out steel in Brazil. The Dongkuk Steel Mill Co of South Korea and the Italian metals group Danieli are also helping to finance the construction of a US$700 million steel slab plant in the northeastern Brazilian state of Ceara.

Brazil has long had big dreams about steel. But years of sluggish economic growth and the high cost of credit kept the industry from expanding faster. With China's voracious appetite for materials having breathed life into steel companies across the globe, Brazil is among the main beneficiaries.

"The plans this time for these facilities look as though they are well founded, mainly because they are on the basis of the need for steel from a growing economy in China and will partially be funded by outside sources with a lot of money," said Karlis Kirsis, a managing partner at World Steel Dynamics, a steel research group in New Jersey.

But now that the Chinese government is taking steps to stop the economy from overheating, many analysts fear that China may not need as much foreign steel as initially thought. When Chinese authorities recently said they were considering canceling some construction projects and even temporarily forbidding banks from making some loans, share prices in Brazilian steel companies sank on the Sao Paulo Stock Exchange.

Others, however, say fears are overblown.

"Even if China's economy starts to cool off," said Germano Mendes De Paula, a steel specialist at the Federal University of Uberlandia in Minas Gerais, "millions of Chinese are leaving the countryside each year to move to cities. It's not hard to imagine the demand for housing, and thus steel, that migration like that generates."

"Demand from China may shrink a bit, but it's not going to dry up anytime soon," he added.

The prospect of steady demand from China has steel makers just about everywhere looking to increase production, stoking concerns about a possible glut of steel that could drive down prices. Even so, a low-cost producer like Brazil appears better positioned than most to weather the storm, if there is one.

"If anyone is going to be able keep raising production capacity, it's Brazil," said Luciana Machado, a steel analyst at Fator Corretora, a Sao Paulo brokerage firm.
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