Brazilian steel industry nearing “crisis”?

Brazilian steel industry nearing “crisis”?

MarketWatch breaks news that the steel industry in Brazil may be headed for a serious downturn, with one analyst saying the sector is “almost at crisis point” due to a strengthening currency (deterring foreign imports) and rising raw materials costs. Marcos Assumpcao, head of natural resources, equity research, at Itau BBA , continues, “There’s been a sharp fall in Brazilian steelmakers’ profitability. In early 2008, EBITDA margin levels were above 40%: they’re close to 10% now. Coal prices have risen even more than iron-ore prices which is damaging to Brazilians, and the real has appreciated much more than currencies in other steel-producing countries.” Demand surges from China and other emerging market players have sent raw materials costs for steelmakers skyward, with prices for metallurgical coal and iron ore reaching record-high levels earlier this year. Brazilian producers have tried to offset higher materials costs by boosting output, but their efforts have been hindered further by a rapidly appreciating real.