Alacero Warns on Chinese Shift to Scrap Based Steel Making
Latin American Steel Association Alacero announced that the change in the way of producing steel in China will trigger a process of distortion in emerging
Latin American Steel Association Alacero announced that the change in the way of producing steel in China will trigger a process of distortion in emerging markets, such as Latin America. China is transforming its steel production from blast furnaces to electric furnaces in China, in line with its goal of achieving carbon neutrality by 2060, which will require a significant amount of scrap that it did not consume before. With this change, the demand for scrap from the Asian giant will tend to grow exponentially, causing an even greater distortion in emerging markets such as Latin America, which depends on scrap as the main input for steel production. In 2020 China accounted for 57% of global steel production with 1,053 million tons. This new factor adds to the excess capacity of 590 million tons in 2020 that has been present for some years, of which China is responsible for 18%.
Given the projected economic growth of 3.6% of GDP in Latin America and the Caribbean by the International Monetary Fund (IMF) for 2021, the region is betting on the execution of new infrastructure and construction projects. This will mean a greater demand for steel for which a significant volume of scrap is required to supply regional requirements. Latin American countries are in time to take measures to prevent this change in Chinese industry from impacting local markets, affecting job creation.
The restriction on scrap exports is one of the main measures, as Colombia did in 2020 through Decree 1120, which corresponds to a semi-annual volume of scrap equivalent to 42% of the need for the sector to achieve growth of 15 %. The control measures contained in Decree 1120, which must be maintained and even adapted to new macroeconomic conditions, are based on the agreements of the World Trade Organization (WTO), due to the insufficient availability of this particular raw material that turn ferrous scrap into a fundamental input for industries such as housing construction and infrastructure. This year it is estimated that production in Colombia will return to 2019 volumes. A huge effort by the industry to have product available,