Issue – April 2019

The Brazilian scrap market has encountered several difficulties over the last quarter, impacted by consolidation within the steel sector such as ArcelorMittal’s acquisition of the Votorantim group’s steel unit around year ago.

Despite steel’s recent price gains worldwide following the Vale ore mine accident at Brumadinho, scrap did not follow this increase despite being one of the main mill inputs; on the contrary, scrap prices have suffered significant falls in recent months, according to a recently-completed survey by S&P Global Platts. This US agency, which specialises in providing benchmarks for commodity markets, compared prices of the various types of scrap in Brazil based on data collected from more than 120 market participants, including companies, traders and investment banks. According to the agency, there has been a continuous movement among steelmakers towards imported scrap in recent months which has further reduced the price of the product in the domestic market.

This is bad news for a sector currently composed of more than 5600 companies across Brazil. More than 92% of these micro-enterprises have fewer than 10 employees but are responsible - directly and indirectly - for the generation of 1.5 million jobs among collectors, transporters, processors and distributors of ferrous scrap in Brazil. In addition, the production of Brazilian steel is concentrated in the hands of only two mill groups, with Gerdau and Arcelor accounting for more than 80% of the country’s long steel market. This ultimately affects the final consumer.

The S&P Global Platts survey released in early April shows a fall in ferrous scrap buying prices within Brazil depending on quality, region and quantity. According to S&P, long steel mills reopened their portfolios on the first business day in April with a further reduction in scrap prices, indicating that similar measures might already be planned for May and June. Steel producers had already cut their offers earlier in the year.

The fact that surprises everyone is how the value of scrap does not follow the price of steel in Brazil. The spread between the products is extremely wide and can be explained by the excessive concentration of the country’s steel market. Instances of falling scrap prices at a time of rising steel prices are quite common.