* Scrap producers seek to block tax proposal
* Steel mills want gov't to tax scrap exports
* Steelmakers say local scrap supply not enough
* Mills seek levy as rising costs hurt profit
By Guillermo Parra-Bernal
SAO PAULO, Nov 6 Brazil's largest steelmakers
and scrap metal producers are at odds over a potential scrap
export tax, a dispute that underscores the high level of
protection that local industrial conglomerates enjoy.
Representatives of the scrap metal sector, which employs
more than 1.5 million people, began an offensive on Tuesday with
lawmakers and government officials to block steel industry lobby
Instituto Aço Brasil's proposal to implement the tax, which it
submitted to the Ministry of Development, Trade and Industry
The levy may allow mills to control costs by limiting scrap
producers' pricing power, said André de Almeida, a legal
director for Instituto Nacional das Empresas de Sucata de Ferro
e Aço, a group representing the scrap sector known as Inesfa.
Currently, the 10 million tonnes of scrap produced in Brazil are
sold at a 33 percent discount to international prices.
Scrap is the main ingredient used to make steel in electric
arc furnaces. It is widely used by Gerdau SA, the
nation's largest producer of long steel; Votorantim Siderurgia,
a unit of Grupo Votorantim, and the local unit of ArcelorMittal
. Scrap producers export 0.2 percent of annual
production, Almeida said.
"The largest steel groups want the government to create this
tax because they are not willing to pay a fair price for the
scrap they consume," Almeida said. "Is it fair that millions of
people have to pay in order to sustain the profit margins of
Marco Polo de Mello Lopes, executive president of Rio de
Janeiro-based IABr, as Instituto Aço Brasil is known, s aid in a
phone interview that the motivation behind the tax is "imposing
a barrier to countries that block our exports of steel-related
products" and "not an action against the scrap sector."
Two-thirds of Brazilian scrap metal is exported to
countries, which like China, India and Iran, impose restrictions
to the entry of Brazilian value-added products on to t heir soil,
Lopes noted. "Our tax proposal is simply a matter of trade
reciprocity," he said.
The dispute comes as Brazil's steel industry faces one of
its worst crises in years. Mills in Brazil are grappling with
global steel overcapacity and weak prices, rising costs for some
raw materials such as coal, and a domestic output glut.
"Instituto Aço Brasil and the mills in general are not
against exports of scrap. What is motivating us is a trade
issue, nothing else," Lopes said.
President Dilma Rousseff's administration has stepped up
protection of steel and other industrial groups by hiking taxes
on imports of some products, slashing taxes on payrolls and
ensuring demand for flat and long steel products by home
appliance and auto makers as well as homebuilders.
Almeida, who on Tuesday is scheduled to meet lawmakers to
explain the consequences of a potential tax on scrap exports,
said the sector is comprised of about 3,000 small and mid-sized
firms and 850,000 independent collectors.
The attempt to restrict Brazilian scrap exports comes as
steel scrap prices trade at their lowest levels in more than two
The price of scrap in Shanghai has fallen 25 percent this
year, according to Steel Home's scrap index . Scrap delivered at U.S. mills is
also trading at some of its lowest levels in two years.
In São Paulo, the country's largest market for scrap metal,
prices per kilogram of the material are at 0.30 reais compared
with an average estimate of 0.45 reais abroad, according to
Inesfa estimates. During the financial crisis of 2008, scrap
producers resorted to exports for survival, after local prices
sank to the equivalent of 0.10 reais a kilogram.
"We generate more scrap then we consume. Since the scenario
for exports is favorable and there is no risk of a shortage in
the local market, we don't understand this anticompetitive
initiative from Instituto Aço Brasil," Inesfa's Almeida said.
IABr's Lopes rebutted that view, saying that "demand for
scrap metal in the local market outpaces supply ... we have a
chronic supply problem that might only escalate if exports