Taxation of Chinese steel in Brazil: a fight where there is no shortage of offenses or personal attacks

A fierce dispute over steel imports has turned into an open war in a gigantic sector of the economy that contains some of the country's largest companies. On one side, there are Brazilian steel companies, which defend greater taxation on the entry of Chinese steel into Brazil, a movement that has intensified in recent months. On the other hand, there are companies purchasing this steel, which argue that taxation could generate highly damaging costs for the capital goods industry. Last week, a statement by the president of the Brazilian Association of Machinery and Equipment Industry (Abimaq), José Velloso, acted like gasoline thrown onto a fire that was already smoldering.

In an interview with the newspaper Folha de S.Paulo, Velloso accused Brazilian steel companies of “blackmailing” and, nominally, attacked the president of the largest of them, Gerdau. Velloso called executive Gustavo Werneck, CEO of Gerdau, a “kid” and said that his arguments in defense of the protection of Brazilian steel are “lies”. The statements fell like a bomb in a sector marked by discretion and reserved positions, surprising everyone from government representatives who deal with the matter at the Ministry of Development, Industry, Commerce and Services (MDIC) to members of the National Confederation of Industry (CNI). “We have never seen a dispute in this sector escalate to this level. It is even a case of questioning the legitimacy of a leadership that makes these accusations”, says a source linked to the entity.

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The steel war has its origins in a request presented by Instituto Aço Brasil to the MDIC to increase the import tariff on several products, including a specific type of steel used by Brazilian machinery industries. The institute calls for an increase in the current rate – which varies between 11% and 12% – to 25%.

The president of Instituto Aço Brasil, Marco Polo de Mello Lopes, and the president of Abimaq, José Velloso, spoke to Money about the fight between the sectors, a clash that should go far.

Steelmakers fear “Chinese invasion”

The national steel sector, which includes giants such as Gerdau and CSN, fears that the country will be flooded by Chinese steel. With the Asian country's economy growing less and the construction sector slowing down due to the recent collapse of Evergrande, the president of the Instituto Aço Brasil reinforces that Chinese steel is already taxed at 25% in countries such as the United States, Mexico and the Union European. He fears that companies will shut down plants and increase unemployment in the sector.

“What we are experiencing is the perfect storm. We have the sector's internal sales falling, exports falling, imports rising exponentially and the sector has an idle capacity of 40%, which is very high. If nothing is done, the result will be layoffs and plant closures,” explained Lopes.

The steel industry claims there are 564 million tons of surplus steel for export and 191 million are Chinese. Lopes states that China is currently exporting 100 million tons, which means twice as much as Brazil's capacity. Lopes also calls Abimaq's arguments “narratives” and that the entities that criticize the increase in the rate do not have any representation.

“Whoever is on the side of the Abimaq coalition has no representation. The Railway Industry Association: there is no expansion of the railway network in Brazil. The Naval Industry Association was once very strong and you have nothing today. The group that I coordinate represents 43% of GDP and has the cement, toy and several other industries,” he stated.

“The most expensive steel in the world”

The author of the heavy criticism against the steel mills, José Velloso represents the machinery producers sector, one of the largest consumers of steel in the country. In a more measured tone than the one adopted two weeks ago and avoiding controversy over the attacks in the interview with Folha de S.Paulo, he justifies that Brazilian steel is the most expensive in the world for small industries.

A study carried out by the presiding entity, Abimaq, shows that steel produced in the country is up to 42% more expensive than nationally imported steel. According to the association, a ton of hot-rolled steel costs up to US$1,210 in Brazil, compared to US$794 on average across countries. The entity cites CRU Group, a private company specializing in business intelligence, as the source of the data.

Faced with the argument that maintaining tariffs on Chinese steel could lead the steel industry to lay off workers, Velloso outlines another disastrous scenario in which an increase in rates would have a deleterious effect on inflation, as products such as refrigerators and automobiles could become more expensive. expensive.

“If the entry of Chinese steel will generate unemployment in the steel sector, the taxation will have a much greater economic impact. The sector we represent generated 396 thousand jobs in 2022, compared to 126 thousand in the steel industry. If barriers to the entry of imported steel increase, the situation could worsen even further”, assesses Velloso.

Next Thursday, the 8th, Gecex of the Ministry of Industry and Development is expected to take a position on the dispute or request more information. The war, it seems, is just beginning.