The Brazilian steel industry has seem better days. If we look at the three stocks traded as ADRs in the NYSE, we can see the depth of their agony in the last ten years:
Companhia Siderúrgica Nacional – CSN (NYSE:SID):
In the 27th Brazilian Steel Congress, held by the Brazil Steel Institute, industry executives said that the moment is still of high pressure and explained their survival strategies. As a common theme, they all mentioned exports will be the way to survive in the short term.
Benjamin Steinbruch, shareholder and president of Cia. Siderúrgica Nacional (CSN), said he believes the internal market is “the future” of the sector. It is necessary that the government create mechanisms to ensure that competitive conditions are the same as in other countries. He also complained about the high interest rate in the country today.
Questionable government policies in recent years have led to an impoverishment of the country. “It is the highest impoverishment through which a nation has been, without a war”, he said.
The new president of Usiminas, Sergio Leite, explained that the focus of the moment is survival – in the next three to five years this will be the order of the day. Meanwhile, calls for government priority to a program for the processing industry in the country. “Restructure and adapt businesses to market reality [is needed].” The “bottom” is already approaching, but recovery will take time, he said.
André Gerdau Johannpeter pointed out that the current crisis in the sector was announced. For some time, he said, we have been discussing the pressure that the Chinese excess capacity would have on the Brazilian market. According to the president of Gerdau, this oversupply from China will impact even on the next five to ten years.
“In the short term, what we can do is to seek export. There will be no domestic recovery”, Gerdau said. “Without exports, the picture is dramatic: layoffs and closed plants. In the medium and long term, we need structural competitiveness, changes in labor laws and taxes”, he added.
The event also brought experts on China and foreign trade, which said that the recognition of the Asian country as a market economy by the World Trade Organization (WTO) could distort the steel industry and other sectors in the world.
Usha Haley, professor at the University of West Virginia, said Chinese mills have access to cheap and easy capital, while receiving large subsidies from the local government. She believes that Chinas’s ultimate goal is just to increase production and, while maintaining employment and guaranteed volumes in the domestic market, be able to become a major exporter of the material.
Despite the gigantic fall in stock prices over the last 10 years, it’s hard to get positive on this industry. Sure, after so many years of oversupply and depressing costs, one could expect a turnaround and, in fact, all three ADRs are sharply higher in 2016. However, a more consistent recovery seems to be far for this industry.