Columbia’s long steel market

While an estimated 72% of Columbian steel demand is related to construction, recent years have been challenging for indigenous steel companies active in the field of long products fabrication. According to one of them – Acerías Paz del Río, part of Andi Acero (the Columbian Committee of Steel Producers) – a better performance from the construction market is anticipated this year. By Germano Mendes de Paula*

THE Colombian Committee of Steel Producers (Andi Acero) represents the five steel companies dedicated to the fabrication of long steel products in Colombia. Those five companies are: Acerías Paz del Río (ADP), Gerdau Diaco, Siderúrgica Nacional (Sidenal), Siderúrgica Del Occidente (Sidoc), and Ternium. According to Andi Acero, the apparent consumption of long steel products in Colombia expanded slightly from 2.2Mt in 2018 to 2.3Mt in 2019. However, because of COVID-19, it temporarily retracted to 1.8Mt in 2020, followed by a quick and substantial recovery to 2.4Mt in 2021 (Fig 1).

The share of rebar in Colombian long steel demand has been relatively stable at around the 66% plateau along the referred period. The same trajectory was observed for wire rod (20%) and other products (14%).

Rebar and wire rod

Due to its prominence, rebar is an important segment of the market and, therefore, needs attention. A webinar promoted by Andi Acero examined the different perspectives of the Colombian steel market earlier in the year. ADP, a participant in the webinar, delivered an interesting presentation. The following information is based on ADP’s lecture.

Fig 2 shows the evolution of rebar steel consumption over the period 2018 to 2022, highlighting that the latest year has preliminary figures.

The market recovery of 2021 was not sustainable, as rebar demand retracted to 1.4Mt in 2022, which was the same amount registered in 2018. Nonetheless, it is important to highlight that the market share of imported products diminished from 32% in 2018 to 17% in 2022. This outcome derived from the expansion of domestic installed capacity. In particular, Ternium commissioned a new 520kt/yr rebar rolling mill in Palmar de Varela in November 2020. It was added to a previous 220kt/yr nominal capacity. Not surprisingly, the main motivation of this $76M investment was to replace imports.

Regarding the origin of the imports, Fig 3 shows that Mexico was a key

* Professor in Economics, Federal University of Uberlândia, Brazil. E-mail: germano@ufu.br supplier with a share of 62% in 2022. It maintained its participation around the 60% level during the analysed period. However, Peru gained considerable traction, by enlarging its share from 1% in 2018 to 16% in 2022. Turkey, the world’s largest exporter of rebar, diminished its relative importance from 21% to 16%, respectively. Brazil, after improving its participation from 17% in 2018 to 25% in 2020, had a disappointing performance, ending with a 5% share.

Roughly 83% of the imported rebar came from countries that have free trade agreements (FTAs) with Colombia. The country has signed FTAs with several nations or trade blocs aimed at liberalising trade between them. Currently, it is negotiating with Japan and Turkey. Imports from countries without FTAs are subject to tariffs of between 5% and 10%.

Domestic rebar production was boosted from 790kt in 2019 to 922kt in 2022 (Fig 4). Meanwhile, the respective numbers for wire rod were 154kt and 213kt. Other long steel products registered a slight decrease from 392kt to 350kt. As a whole, the aggregate production of long steel products in Colombia amplified from 1.34Mt in 2019 to 1.49Mt in 2022.

Construction market perspectives

It is estimated that approximately 72% of Colombian steel demand is related to the construction sector. Obviously, this is of great importance to the long steel segment. In 2022, higher interest rates and inflation combined with political uncertainty (due to the Presidential elections) led to an unsatisfactory performance of the construction industry. ADP data ratifies the weak conditions of the country’s construction market in 2022 year-on-year by showing that: a) real estate launches plummeted 17.2%; b) construction starts declined 0.5%; c) sales decreased by 11.2%; rates are estimated to be transitory, returning to historical averages as of Q3 and Q4; b) continuity of housing policy instruments: subsidies to the “Mi Casa Ya” programme will achieve the historical maximum; c) construction risk indicators at favourable levels: builders do not expect project interruption, and the drop-out ratio is within typical parameters; d) acceleration in the execution of large infrastructure projects, such as the improvement of roads, the expansion of Bogotá and Cartagena airports, and the investments related to 4G and 5G networks. and d) supply dropped 7.1%.

Bearing all this in mind, ADP forecasts that the construction industry’s demand for long steel products will reach 1.9Mt in 2023, equivalent to an increase of 5% year-on-year, recovering to the level verified in 2021 (Fig 5). In 2023, the informal segment (which means building without appropriate licenses and permits) will be equivalent to 33%, followed by residential (31%), infrastructure (23%), wire rod (9%), and others (3%).

ADP, however, expects a better performance from the construction market in 2023, because of: a) increased interest

In conclusion, the ‘hangover’ that characterised the Colombian long steel market in 2022 is over. It is highly likely that the import ratio will continue to decline as a consequence of the Ternium Palmar de Varela’s ramp-up. It is not clear, however, if and when the industry will start facing a less unstable demand trajectory. �