The Latin America Steel Market:an Overview

Francisco Leal

OECD Steel Committee. March 2020, Paris

Introduction

2

▪ Once again: A challenging global environment. On top of the 2019 mentioned

uncertainties we are facing now new issues that could impact even more.

▪ Latin America's growth of only 0.2% in 2019 contrast to the previous year's

rate (1.6%), the expectations at the beginning of the year (2.1%) and the

potential GDP growth (close to 2.5%).

▪ A recovery is expected in 2020 and 2021: growth should reach 1.4% this year

and 2.1% the next. It would be based on the improvement of the global

environment plus some internal issues regarding idiosyncratic uncertainty and

an expansionary monetary policy in an environment of relatively low inflation.

▪ The recovery will be widespread, increasing growth, in a context of relatively

low commodity prices and downside risks, will be a great challenge.

Growth will remain weak relative

3

Source: IMF. WEO Feb 2019(e): estimated

0,3

-0,6

1,21,0

0,1

1,6

2,3

-2,0

-1,0

0,0

1,0

2,0

3,0

2015 2016 2017 2018 2019 2020(e) 2021(e)

GDP (%)

Steel Drivers: better 2020-2021

4

Source: Alacero(e): estimated

-1,4

0,3

1,4

-0,3

1,62,2

-5,3

3,73,4

0,3

2,5 2,2

-6,0

-4,0

-2,0

0,0

2,0

4,0

6,0

2016 2017 2018 2019 2020 (e) 2021 (e)

Industrial Production SWIP

81,9% 81,7%

18,1% 18,3%

2018 2019

PRIMARY IRON

Pig Iron Sponge Iron

45,9% 46,6%

54,1% 53,4%

2018 2019

CRUDE STEEL

EAF OBC

Construction still as the main driver. Steelmaking mainly BOF andlong products

5

Raw Production

44,85%

1,62%4,16%

15,48%

12,83%

20,24%

0,82%

Steel Weights(2019)

Construction Domestic Appliances

Electrical Equipment Mechanical Machinery

Metal Products Automotive

Other Transport

49,8%47,3%

2,9%

Finished Production(2019)

Longs Flats Seamless Tubes

Latin America GDP outlook

6

GDP Growth (%)

Source: Latin America from IMF WEO Oct 2019 - February data update. Others from National Regional Secretaries.(e): estimated

Country 2016 2017 2018 2019 2020(e) 2021(e)

LATAM -0,6 1,2 1,0 0,1 1,6 2,3

Argentina -2,1 2,7 -2,5 -3,1 -1,3 1,4

Brazil -3,3 1,1 1,1 0,9 2,0 2,4

Chile 1,7 1,3 4,0 2,5 3,0 3,2

Colombia 2,1 1,4 2,6 3,4 3,6 3,7

Dominican Republic 6,7 4,7 7,0 5,0 5,2 5,0

Ecuador -1,2 2,4 1,4 -0,5 0,5 1,6

Mexico 2,9 2,1 2,0 0,4 1,3 1,9

Peru 4,0 2,5 4,0 2,6 3,6 4,0

Venezuela -17,0 -15,7 -18,0 -35,0 -10,0 -5,0

Latam ASU Outlook for 2020-2021

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Million Tons

Other Latam: Bolivia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panamá, Paraguay,

Trinidad & Tobago and Uruguay.

Country 2019 2020(e) 2021(e)

LATAM 64,2 65,9 68,1

Argentina 3,9 3,9 4,2

Brasil 20,6 21,7 22,8

Chile 2,6 2,7 2,7

Colombia 3,6 3,8 3,8

Dominican Rep. 0,6 0,6 0,6

México 24,2 24,6 25,0

Peru 3,8 3,8 3,9

Venezuela 0,1 0,1 0,1

*Others Latam 4,7 4,8 4,9

Latam ASU Outlook 2020-2021 (%)

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Growth Rate (%)

Other Latam: Bolivia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panamá, Paraguay,

Trinidad & Tobago and Uruguay.

Country 2019 2020(e) 2021(e)

LATAM -4,3% 2,8% 3,3%

Argentina -18,8% -1,6% 8,1%

Brasil -2,7% 5,2% 5,0%

Chile -3,6% 1,5% 1,7%

Colombia -1,7% 5,5% 1,9%

Dominican Rep. 11,0% 5,2% 5,0%

México -5,3% 1,4% 1,6%

Perú -6,7% 1,8% 2,0%

Venezuela -30,0% -10,0% -5,0%

*Other Latam 9,1% 2,4% 2,8%

67,60

52,89

25,09

10,62

67,58

54,25

23,74

9,69

64,17

50,38

22,76

9,06

0

10

20

30

40

50

60

70

80

Consumption Production Imports Exports

2017 2018 2019

-5.05%-0.02%

+2.57%-7.12%

-5.40%-4.12%

-8.81%

-6.52%

Latin American steel market between 2017-2019

9

Million Tons

Source: Alacero

10

*ALACERO and WorldBank - March/2020 *IMF - March/2020

Latin American GDP and Consumption per Capita until 2021 outlook

120

115

106

109

108

102

104

107

9,962

8,676

8,240

8,815

8,411

8,252

8,456

8,838

8000

8500

9000

9500

10000

100

105

110

115

120

125

2014 2015 2016 2017 2018 2019 2020 (e) 2021 (e)

Consumption per Capita LATAM GDP per Capita LATAM

Tons per Capita USD per Capita

General View

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Latin America deep impact

consequences

▪ The effects of the trade war between the

United States and China in 2019 caused

uncertainty in Latin America. At the end of

the year countries such as Brazil, Chile,

Colombia and Peru saw their exports fall.

▪ It has been reported that at the regional level,

the fall in Peruvian exportable supply (-4.2%)

was the fourth most critical after Brazil (-

6.6%), Chile (-5.7%) and Colombia (-5.4 %).Source: worldbank

Risks and opportunities

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▪ According to OECD and World Economic Forum in emerging Latin America growth

persistently low and so unevenly distributed compared to emerging Asia despite

a huge potential, which is been ranging around 2-3%.

▪ Various factors are adding to this complex situation:➢ dependence on commodities

➢ poor education

➢ weak business environments

➢ corruption

➢ low productivity: high informality and weak competition

▪ The scenario for the economic growth is still challenging, low activity data and the

impacts of the coronavirus outbreak, on prices and global demand for commodities.

▪ Despite the short-term risks, improving the prospects for the world economy should

favor the Latin American economy, but the big challenge for 2020 will be growth.

Mexico, and only Chile has room for tax incentives. In addition, political restrictions

will make it difficult to approve economic reforms.

Final comments

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▪ The steel industry in the Latin America region is facing new challenges,

but the potential to growth is still there. Now we must focus on:

• Imports substitution by the new added finished steel capacity with border

protection against unfair competition

• Revert the deindustrialization process by industrial policy focus directed to

productivity, innovate and assimilate new technologies

• Be aware of the global trade tensions and commodities prices

▪ A continuous fall in the finished steel trade deficit, without increasing

production, could lead to a new set of risks of deindustrialization and

loss of competitiveness

▪ A growing urge for the governments, to make sure the there is a “level

playing field”.

The Latin America Steel Market:an Overview

Francisco Leal

OECD Steel Committee. March 2020, Paris