Industry sectors still calculate impacts of taxation on Chinese steel

Although it met the request of the steel sector, the increase in taxes on steel imports promoted by the government last Tuesday (23) still has uncertain effects, assess sectoral entities exposed to the metal. On the side of the steel mills, open definitions still do not allow a prediction about changes in projections. For companies that depend on raw materials, it remains to be seen whether the changes will impact their costs.

Read more: Usiminas benefits most from increase in steel tax, says BBA

Ahead of debates with the government to contain the advance of Chinese steel in the Brazilian market, the Instituto Aço Brasil assesses that one of the main merits of the measure is to give “a signal to the world that this is no man’s land”.

For the Institute’s executive president, Marco Polo de Mello Lopes, Brazil was not following peers such as the United States and European countries, which adopted tariff policies to protect their steel industries. “The sector is very well received. An important, strategic decision was made to establish rules, a tariff quota system,” he says.

In discussions with the government, the Institute demanded the inclusion of 18 NCMs (products) on the list — in the end, only 11 remained, which, however, represent 87% of the entity’s total claim.

In the model defined by the Executive Management Committee of the Brazilian Chamber of Foreign Trade (Gecex), imports that exceed a quota equivalent to 130% of the average import between 2020 and 2022 will be taxed at 25%. “We are now sitting down with the government to operationalize the political vision of this system so that it is operational and effective”, says Marco Polo.

Effect on prices is uncertain

According to Gecex, the decision to raise taxes “will not have an impact on consumer prices”. For Aço Brasil, this is a “normal component” and discussions were based on volume and the resumption of market share by Brazilian companies.

Still, the Institute is unable to make projections about possible changes in sales and occupation of installed capacity. “The expectation is that there will be better operating conditions […] We will probably review the data that predicted a 20% growth in imports and a 6% drop [na produção]”, says Marco Polo.

Entities representing other sectoral institutions, however, are still evaluating whether their costs will increase with the increase in taxes levied on imports of volumes exceeding quotas.

Impact on civil construction

In a press release, the Brazilian Association of Real Estate Developers (Abrainc) says that the government followed an approach that preserves the competitiveness of a large part of the market and “the majority of steel used by the construction sector was not affected by the increase”.

“The increase in costs associated with wire rod can have significant repercussions on the economic viability of projects, harming not only companies in the sector, but also the population that depends on affordable housing”, considers the association.

Wire rod – a product widely used in industry – was included in the increase in import tax. “The decision directly impacts industrialized construction, a fundamental practice in popular construction projects”, informed Abrainc. “The construction and real estate development industry hopes that there will be no increase in prices and continues to monitor the situation”, he added in a note.

Machines and assemblers

The Brazilian Association of the Machinery and Equipment Industry (Abimaq), also in a note, stated that it will closely monitor the application of the rules and their impact on the market and industry prices during the next twelve months, the period established by Gecex for the tariff increase .

“Abimaq will continue the open debate with the government and society, in the priority effort to increase the competitiveness of the industry, so that the country produces more and exports more”, says the statement.

The National Association of Motor Vehicles (Anfavea) is still investigating whether the measure will affect production costs. The association guarantees, however, that the increase in the rate does not impact the investment cycle of RS 130 billion in this industry. “These are long-term investments that will not be affected by specific market issues.”

Deadline of measures

According to Aço Brasil, the 12 months, which run in around 30 days, stipulated by the government for the new tax policy, are “usual”. At the end, the sector will assess whether the measures were achieved and, if not, the deadline may be requested to be extended. Although it has not formalized anything, the entity says that it has informally committed, in negotiations, not to paralyze plants and maintain jobs and investments.