Latin America’s Steel Demand to Fall in 2022By Fernando Mares | Fri, 07/15/2022 - 16:03
The Latin American steel industry recovered from the COVID-19 pandemic’s effects in 2021 and reached pre-pandemic production levels. In 2022, the sector is expected to contract due to a possible reduction in demand, as the industry faces high inflation, a global economic slowdown and political instability.
The Latin American Steel Association (ALACERO) expects that steel demand will fall by over two percent in 2022 due to three major factors: the Russian invasion of Ukraine, which has caused a surge in energy prices, inflationary pressures and unpredictable election cycles in the region have caused the largest steel-consuming industries like the construction sector to shrink during 1H22.
Just in Mexico, the construction sector contracted 0.2 percent in May 2022, mainly driven by steel derivatives price hikes of over 100 percent. MBN reported that by the end of May 2022, the cost of steel rods grew by 27 percent, but during the past five years, prices rose over 122 percent: metal sheet prices increased by 27.5 percent, steel wire by 19.6 percent and rebar by 20 percent.
Regionally, the construction sector contracted 3 percent during 1Q22. The automotive industry shrank 1.7 percent, according to ALACERO data. Despite the demand contraction, the organization does not consider it a long-term phenomenon and said that it could recover in 2023 with an estimated growth of 4 percent.
After a month following the start of the Russian invasion of Ukraine, experts estimated that Latin America’s steel demand could be reduced by 2.1 percent, but since the war has been prolonged and the economic indicators are negative, the decrease could be 5 or 10 percent. “At that time, we were at the beginning of the war without knowing its scale or duration,” said Alejandro Wagner, Executive Director, ALCACERO in an interview with Forbes.
According to Wagner, Mexico is the country where these effects are felt the least in Latin America. He expects the country’s consumption of steel will increase, but it will grow at a lower level than expected. Wagner said that the automotive and machinery industries will be the main drivers of growth, even though the construction industry's steel consumption has been reduced.
Wagner is confident in the regional industry’s resilience, which he considers is used to differing economic cycles.