Protective measures: Steel firms look for ways to profit amidst heightened competition

In recent years Peru’s steel production has remained steady, at some 1.1m tonnes annually. With the development of major mining and infrastructure projects, the country imports about half of its total steel consumption. Around 70% of the demand is for long steel products, of which 60% has traditionally been supplied by local producers. For flat steel products, however, imports account for around 80% of supply.

Shifting Climate

This figure is likely to increase further as economic shifts abroad begin to affect the Latin American steel industry. As the Chinese economy has moved away from construction and heavy industry and towards internal consumption and new growth areas such as retail and technology, demand for steel in the country has dropped, prompting steel mills to dramatically lower their prices to increase exports to compensate.

This has resulted in cut-price steel imports from China inundating Latin America. According to a report by the Latin American Steel Association (Asociación Latinoamericana del Acero, ALACERO), imports of flat steel products from China to the region increased by 128% year-on-year (y-o-y) in the first half of 2015, while imports of rebar grew 90%. “The deceleration of the Chinese economy has brought down prices and led to an increase in cheap steel exports to Peru and other countries,” said Juan Pablo Garcia, general manager of Siderperu, one of the country’s two steelmakers.

Taking A Stand

In April 2015 the National Institute for the Defence of Competition and the Protection of Intellectual Property (Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual, INDECOPI) announced it would be taking anti-dumping measures on laminated steel tubing arriving from China at rates of $60-$80 per tonne. In July 2015 ALACERO presented an open letter signed by steel associations from six Latin American countries, including Peru, requesting that governments improve inspection and quality control of Chinese imports and take measures allowed under World Trade Organisation (WTO) legislation to raise tariffs.

Nevertheless, the competition has not had as drastic an effect on Peru as it has on other countries in the region. Total Peruvian production from January through to September 2015 increased by 2.5% y-o-y to reach 729,000 tonnes.

Local Leaders

The country’s two producers, Siderperu and Aceros de Arequipa, released third-quarter results that were impressive given the global market outlook. The former is the country’s heritage player, established in 1956 in Chimbote and now owned by Brazilian firm Gerdau. The company announced a $1m profit in the third quarter of 2015, compared to a $1.7m loss in the same period in 2014. Since acquiring a 52% stake in Siderperu for $62.7m, Gerdau has invested $245m in modernising the plant. Plans for a new $253m, 360,000-tonnes-per-annum blast furnace, following the 2008 closure of Siderperu’s furnace – the only one in the country – are currently under study. In 2015 the firm targeted $40m in sales following the diversification of its products to include ball bearings. This product, key to the mining industry, is currently imported from Gerdau’s US plants, but future production in Peru is possible.

Peru’s commitment to free trade and the proliferation of trade agreements has won the country plaudits from international investors. While competition from cheap Chinese goods was always foreseen, there is reason to believe that China’s subsidised steel industry warrants WTO sanctions. A concerted effort from Latin American countries to redress the balance would give welcome breathing space to the Peruvian steel industry and help in its efforts to modernise to meet local demand.