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High raw materials cost the most significant threat faced by Brazilian steelmakers - S&P
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Thursday, 08 Nov 2012
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Ratings agency Standard & Poor's said that in the last few years Brazilian steelmakers have faced a strong local currency, high costs of raw materials and labor, significant idle capacity and increased competition from imports, which have seriously affected their competitive advantage and hence their operating margins.

Ms Rafaela Vitória analyst of S&P wrote in the report that "The high cost of raw materials has been the most significant threat faced by Brazilian steelmakers. However, since the end of 2011, these commodities prices have been shrinking, mostly due to a slowing demand from Chinese steelmakers for iron ore and coal, key ingredients for steelmaking."

According to the report, also, domestic steel prices, which traditionally had a premium over international prices, moved along with global prices and are currently at weak levels.

Although a weaker local currency has helped to reduce competition from steel imports, the issue is still a frequent complaint from the country's producers, and S&P does not foresee domestic steel prices returning to historical levels given the current existing overcapacity.

Ms Vitória said that "As a result, Brazilian steelmakers will only be able to improve margins by reducing costs, something hard to achieve due to high labor and energy costs."

S&P expects that the combination of recent government initiatives and tax cuts aimed at improving productivity should reduce costs and provide some space for local steelmakers to see improvements in 2013.

Source - Business News Americas

(www.steelguru.com)

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