Paulo Perlott Ramos, Marketing and Sales Director, and Murilo Osorio, General Manager of Gerdau International Trade, one of the biggest steel producers in the world, have shared with SteelOrbis their opinions about the situation  the world steel market is in today. Mr. Ramos speaks about the risk of producing in excess of demand, of reducing prices and the damage this may cause to all steel producers and eventually to consumers. He draws attention to the fact that exports should be complementary to domestic production and not competitive with it.

Can  we have your opinion on what the world steel market looks like today and what has been discussed during the SteelOrbis Spring 2010 Conference & 62nd Irepas meeting? 

Our opinion at Gerdau is not so different than what others think. The main concern is that there is overcapacity. It is obvious that there is a certain imbalance between supply and demand.  We think that there are a lot of producers who think they can increase their sales if they reduce their prices.  We do not believe this is the right approach because steel consuming projects are not decided based upon steel product prices, i.e., demand which is not present in the market cannot be activated by reducing prices as nobody wil decide to consume more rebars just because prices drop by $10-20/mt, or even by $100/mt. This is not useful to any party. Both producers and consumers will feel this is not a good solution in a few months. This is the main concern nowadays.

So you think the main issue is today is that steel production worldwide needs to be brought down to levels closer to those of demand?

 In particular, demand in Europe is depressed.  Everybody in Europe  is worried about the situation and the crisis is now affecting consumption levels seriously. But no matter how much you reduce your price, if the demand is not there, it is not there. We need to remain calm and wait for better moments. Reducing production or allocating it in different ways could be a solution in the meantime, before pushing prices further down.

How is demand performing in Brazil? And what is your export strategy?

In general, the Brazilian market is recovering consistently in production and demand levels, as opposed to the situation in Europe or other countries . In the context of the Americas, Brazil is also quite good  and pretty stable nowadays, but there is steel overcapacity and apparent consumption per capita is still lower than others countries located in the same region. Perhaps some markets are indicating a comparatively weaker performance, like the US market which is not in as good a condition as Brazil, but it is improving day by day. Also there are some countries in South America suffering liquidty problems. Different countries are facing different levels of consumption. However, speaking specifically for Brazil, we can say that consumption levels are better and that we hold good perspectives as regards the markets lately. But we would like to underline the fact that we have our production capacity in Brazil and some new investments are being made. There are new producers that recently commissioned new capacities in the country, adding to the country's total production capacity. This means that Brazil is capable of supplying all its own requirements via domestic production. Therefore we do not need to import.

We are also trying to control our levels of exports. We are only exporting to some neighbouring countries in order to supply their specific requirements and are not trying to put material around the world. All producers in Brazil are controlling their production levels, aiming to avoid contributing to the overcapacity problem in global terms.

What are Gerdau's export markets and what is your approach to exports in general?

Gerdau has production facilities not only in Brazil but in fourteen countries. These countries are mainly in the Americas, and we have a different supply/demand balance in each country.  As we have mentioned above, our facilities in general are operating at 75-80% capacity.

In fact our main production capacities address the domestic market in Brazil and we mainly focus on exporting with the aim of supplying our group companies' requirements abroad. This means that a major part of our export volumes are destined to our sister companies such as those in Argentina and others, with the purpose of supporting them to complete their product lines.

The main quantity in exports from Brazil goes to Brazilian groups outside of Brazil. Gerdau exports mainly to its sister companies, which are Brazilian companies located outside of Brazil.

We are exerting all our efforts to avoid spoiling price levels and our endeavors are aimed at maintaining our prices.

In view of more active demand compared to the rest of the world, are you facing import competition in Brazil?

Some other producers are trying to introduce material into Brazil. Of course Brazil is an open market and everybody can try to sell here. But on the other hand, we have very strong relations with our customers and we have our capacity, quality, and customer loyalty. And we will have to compete with the imports. The only problem is that if Brazil receives more import material than required, we will then have to export our products to other markets. This means we might have to increase our current export volumes. We do not believe it would be good for the entire market in global terms.  We believe exports should be complementary to and not competitive with local production.

Have imports to Brazil increased in the post-crisis period or has import pricing become more competitive?

No, import quantities are more or less at the same level for now. And speaking for prices, we too had to adjust our prices looking at raw materials at a certain stage.

However, nowadays, the iron ore price is increasing and even scrap saw some increases back in April; however, product prices continue to drop and this divergence does not make much sense. We believe that we should at least maintain our price levels and margins.

In terms of raw materials, do you think Brazil has any strategic cost advantages?

No, what we pay for iron ore is the internationally applicable price. The only advantage we have is maybe in freight, but not the price itself. It should also be taken into account that other costs involved in production such as energy costs, interest rates and taxes are very high in Brazil.

Do you have any investments in raw material sourcing for your own production?

Yes, we have already made some investments in iron ore mining and today we are sourcing about fifty percent of our iron ore requirements from our own mines. In addition to iron ore mining, we also set up a scrap collection facility in Brazil which is also providing us with support in terms of raw material supplies.

For the next quarter, and maybe the second half of the year, what will be your production and sales strategies?

We are following the domestic market which is quite stable in Brazil right now. Speaking for our strategies  in the international markets, we will follow the trends. We are trying not to allocate too much material for export as it is not our main concern to export big volumes. In short, we prefer to focus on supplying our domestic market initially and, depending on where the market is heading to, we will decide what to allocate for export.

Do you ever consider adding new export markets to your current portfolios?

We believe countries in Europe and Turkey have sufficient supplies of long products in their own domestic markets and, therefore, they do not need to receive material from Brazil. But, as we have already mentioned, if they begin sending material to Brazil, we will eventually have to enter those markets as well, even though we prefer not to do so.

Gerdau is the leader in the production of long steels in the Americas and one of the largest suppliers of long specialty steels in the world. It has an industrial presence in 14 countries, with operations in the Americas, Europe and Asia, which total an installed capacity of over 25 million tons of steel. It is the largest recycler in Latin America and it transforms millions of tons of scrap into steel yearly worldwide. With more than 140 thousand shareholders, the publicly traded companies of Gerdau are listed on the stock exchanges of Sao Paulo, New York, Toronto, Madrid and Lima.