Donald Trump’s victory in the American presidential election could intensify the “invasion” of Chinese steel in Brazil, a phenomenon that has punished the lives of steel mills in recent years. For the global president of GerdauGustavo Werneck, if the United States raises import tariffs – as the Republican promised during the campaign –, the Chinese steel surplus will find other addresses. And Brazil will certainly be one of them.
The executive has long been quite vocal regarding the effects of competition with Chinese steel – which he classifies as “unfair”. Now, he reinforces the criticism. “It is urgent that the fare quota system is improved”, he states.
He refers to the policy adopted this year by the government, of taxing the volume that exceeds a certain imported volume by 25%. The rule only applies to 15 types of steel. For the remainder, the rate varies between 10.8% and 12%.
READ MORE: Steel mills (or Biden?) cry out and Brazil raises surcharge on Chinese steel to 25%
According to data collected by the Steel Institute, Brazil imported a volume of 451.1 thousand tons throughout 2023. In just nine months this year, the volume is already at 450.7 thousand – even with taxation. The tariff, in Werneck’s view, should be 35%, and affect all products in the steel industry.
“As other countries put more protection in place, Chinese steel will seek out countries that are without protection,” said Werneck, during an interview to comment on the company’s third-quarter results. “It’s a choice about where the job will be: in Brazil or China.”
Gerdau, globally, could even benefit from this Trump scenario. The company has operations in the United States and Mexico. And the policies to be adopted by the Republican should stimulate investment in production in North America – something that was already seen in Trump’s first administration, between 2017 and 2021. “Trump’s policies should increase the demand for steel, and this could benefit our operations”, he says.
However, the executive sees risks to the dynamics of the Brazilian market. Werneck says that, given China’s relevance in the steel market, Gerdau closely monitors the economy and the measures adopted by the country. And the reading is that the economic stimulus measures adopted by China this year will not be able to reverse excess steel production. And this means that the product must continue to be sold to other markets – at very low prices.
READ MORE: US steel industry is confident of economic recovery in 2025
This statement is based on numbers: Brazil consumes 4 million tons of rebar per year, while China consumed 400 million tons in the years in which its growth was supported by investments in infrastructure and civil construction. But the country’s economic dynamics have changed. The projects have been completed, which means that all this steel is “left over”. “This surplus is going around the world at very low prices, often even lower than the price of the raw material, which is iron ore”, explains Werneck.
We are very confident that Chinese steel will continue to travel around the world, not only in the short term, but in the coming years.
Gustavo Werneck
Another problem faced by the sector, according to Werneck, is the increase in steel imports from Manaus – which does not pay the tariff quota. “We don’t have the information to assess what is happening, but it is necessary for the government to investigate why it has grown so much”, argues Werneck.
Exchange
Trump’s victory should have another side effect: a rise in the dollar. And this, according to Gerdau’s CFO, Rafael Japur, can benefit the company, which, due to its operations outside the country, also has revenue in dollars. Furthermore, the devalued exchange rate could make more exports from Brazil possible.
Gerdau’s planning for the year, in general, foresees a dollar exchange rate close to the estimate brought by the Central Bank’s Focus survey. Currently, this projection is at 5.50%. But Japur believes that Trump’s election should justify an increase in this projection.
READ MORE: Trump’s victory should lead the Fed to make softer interest cuts
Results
Gerdau recorded a net profit of R$1.432 billion in the third quarter, 10% below that recorded in the same period of 2023. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled R$3.016 billion, also a 10% drop compared to the third quarter of last year.
