Global Steel Trade; Structural Problems and Future Solutions

Import Licensing System
Importers may be confronted with another hurdle at the border: an import licensing system that at times is
used to impede imports. Brazil requires a license to import almost any product into the country. Under the
import licensing system, or Sistema de Comércio Exterior, licenses are issued automatically within five
days. 28 However, at any time, selected products can be made subject to “nonautomatic” licensing and
consequent significant delays. 29 Wire rod and stainless steel are two steel products currently subject to the
nonautomatic procedures. The lack of consistently applied rules discourages imports into the Brazilian
market. 30
“Captive” Distribution Channels
According to Hans Mueller of TN Consulting in Murfreesboro, Tennessee, “[p]roducers in … Brazil …
have strong captive distribution networks, which also act as a barrier to imports.” 31 The “captive” nature of
this distribution network is another key reason for the low level of imported steel in Brazil. 32 Currently 70
percent of ordinary flat-rolled steel sold domestically in Brazil is sold directly from the mill to end users
such as the auto industry. The remaining 30 percent is sold through both independent and mill-owned
distributors. Brazil’s large ordinary flat-rolled producers, CSN, Usiminas, and Cosipa, have purchased
steel distributors in an effort to consolidate distribution.
Benjamin Fernandes, president of one of the largest independent service centers in Brazil, has argued that
“this consolidation has unbalanced the market, with the large, mill-linked distributors trying to do the job of
the medium and small ones, which generally offer better delivery times.” 33 Others have commented that the
few independent distributors that have operations in Brazil do not pose a significant challenge to the
captive distributors, in part because they lack the sophistication of their counterparts in the United States or
Europe. As said by one analyst, “Companies like Thyssen [a major multinational trader] don’t want to take
on a fight for market share [in Brazil].” 34
Brazil’s Steel Industry Maintains Exports
in a Volatile Global Market
In mid-1998, the buildup to Brazil’s own financial crisis began as Asian economies continued to fall
and the Russian financial crisis hit. In an effort to defend its currency, the Brazilian Central Bank
raised interest rates to nearly 50 percent. 35 By stifling new investments in domestic infrastructure and
other projects, high interest rates contributed to a 7 percent decline in domestic demand for steel.
Total domestic sales of steel products dropped from 14.7 million metric tons (MT) in 1997 to 13.6
million MT in 1998. 36
Asia was Brazil’s largest steel export market prior to the Asian financial crisis, accounting for almost 33
percent of total Brazilian steel exports in 1997. After the crisis hit in 1997, the share of Brazilian exports
going to Asia dropped to about 20 percent in 1998. From 1997 to 1998, Brazilian steel exports fell by
roughly 14 percent to South Korea, 53 percent to Thailand, 60 percent to Singapore and 83 percent to
Malaysia. 37
To compensate for the loss of export markets in Asia, Brazilian steel producers increased their exports to
Latin America, Europe and, for certain steel products, the United States 38 (Chart 3-41). For example, from
1997 to 1998, the share of total Brazilian hot-rolled steel exports going to Europe increased from roughly 4
percent to 13 percent. Over the same two years, the share of total hot-rolled steel exports going to the rest
of Latin America increased from roughly 18 percent to 31 percent 39 (Chart 3-42). Although largely
successful at finding alternative markets, Brazilian steel makers’ exports of hot-rolled steel dropped 8.4
percent from 1997 to 1998. 40
Chapter 3: Behind the Crisis—Brazil 103