As certain as Brazilians have been to celebrate Carnival every year for decades, just as uncertain has been the predictability of the nation’s ferrous scrap industry in the last four decades.
February is Carnival time, and cities like New Orleans, Venice, Italy, Cologne, Germany and Rio de Janeiro are clearly in the global top 10 in celebrating that party festival. While these cities and nations might have something in common for that one week, something sets Brazil apart from Italy, Germany and the United States the rest of the year.
For the past four-plus decades, Brazil has not had a very developed and stable scrap industry that runs on the same track the way it does in Europe or the U.S. Brazil instead has a bit of an on-again-off-again love affair with scrap: importing some years, exporting other years.
The nation can go from abruptly stopping scrap exports to suddenly ramping up scrap imports while experiencing similar fluctuations in the amount of domestic scrap it is generating.
Since I’m writing this at the time of year when the streets of Rio de Janeiro are abuzz with the rhythm of Samba music, why not take a closer look at the beat of Brazil’s on-and-off love affair with ferrous scrap?
Taking it all in
My earliest recollection of scrap exports to Brazil was in 1986. I was a junior in the scrap department at Marc Rich & Co. in New York. One day, my boss and mentor, Alter Goldstein, stepped out of his office and said to one of the younger traders, “I think it’s time you take a trip down to Brazil to visit the scrap buyers. On your way back, you may want to fly via Caracas and visit Sivensa.”
That was the Venezuelan steel mill that in the 1980s was a regular importer of U.S. ferrous scrap. Those were the days when Venezuela was still a wealthy country, well before Hugo Chavez’ putsch. (But that’s an article for another edition.)
Email, the internet, Twitter and other means of social media and high-speed communication did not exist. The fax was still a new concept. Telex was the way we communicated, but we were blessed to have full-fledged offices in Rio de Janeiro and Sao Paulo, staffed by traders who had their fingers on the pulse of the various industries and commodities they were in charge of handling. These were steel, scrap, ferro-alloys, pig iron, coal, oil, sugar, wheat, soybeans and cotton.
Having the luxury of a local office and Telex communications put the commodity trading companies of those days, including Phillip Brothers, Metallgesellschaft and Marc Rich, in the enviable position of having direct access to the producers to be able to gauge daily their buyers’ next raw materials requirements.
The Brazilian steel mills importing scrap at that time were Aços Norte, Villares and Gerdau, and all scrap imports were in bulk shipments. These cargoes were discharged in the ports of Fortaleza, Vittoria and Porto Alegre. Over the 35 years I have been in the ferrous scrap trade, I identified several periods, each with a very distinct rhythm of scrap activity for Brazil.
1987 to 1994
We were shipping U.S. East Coast cargoes to Brazil from New Haven, Connecticut, Philadelphia and even from Miami. Yes, there was a bulk exporter there in the 1980s called Sunshine Scrap Metals. I kid you not.
But we were not limited to U.S. origin in those days. We repeatedly shipped scrap to Brazil from the United Kingdom, loading in Newcastle and Liverpool, as well as from our own transshipment terminal in Amsterdam.
I recall on one occasion we started loading our cargo in Hamburg, Germany, with heavy melting steel (HMS), and the plan was to finish it off in Amsterdam with plate and structural (P&S) and shredded. The buyer’s Brazilian representative who, along with a mutually appointed independent surveyor, was dispatched to supervise the loading. He was a real pain in the posterior, if you get my drift.
He was nitpicking and rejecting pile after pile. It became very unpleasant, to the point where we did not have enough acceptable material (to him) in Hamburg. So, we loaded less and shifted the vessel to Amsterdam sooner than we intended, only to face further quality challenges with the picky buyer’s representative.
At some point, a 1,000-ton barge full of cut-up rebar moored alongside the ocean-going vessel. Some of the rebar was short cut and well-prepared. Other parts, admittedly, were not so nice. Upon seeing the rebar, the buyer’s rep blew a gasket. I thought he was going to torpedo that barge. Suddenly, he spoke perfectly good English, and a series of four-letter curse words were flying all over the ship’s deck, which was the vantage point from where we were observing the rebar in the barge below us.
At this point, he yelled out, “This is not HMS, this is spaghetti.” We calmed him down, massaged his ego a bit by promising to only load the short-cut rebars and upgrade the cargo with some extra HMS No. 1. Eventually, he composed himself, and we headed back to the hotel for what I thought would be a good night’s rest.
Little did I know, the Brazilian buyer had a different plan. At 2 a.m. I was rudely awoken by a knock on my door. It was him, telling me that we were going back to the terminal because he wants to see what we are loading at night when he is not there to observe. About 45 minutes later, we boarded the ship and the complaining started again. At that point, the independent surveyor turned to me, and with a straight face said in Dutch, “Zal ik hem overboord duwen voor jou,” meaning, “Shall I toss him overboard for you?”
Eventually, that ship sailed in peace after the buyer’s rep signed off on the quality.
There are many more nightmare stories of buyer’s reps from across the globe, each one with their own idiosyncrasies, but that. too, is a story for a different time.
1999 to 2011
Bulk shipments to Brazil continued from the United Kingdom and the U.S. East Coast, albeit in much smaller numbers. Because the distance from the U.K. to Brazil was about 800 miles longer than from the U.S. East Coast, scrap folks often not familiar with these movements would scratch their heads and ask, “How can that work?”
The fact is, it worked very well. Somehow the difference in lower priced U.K. scrap allowed for the more expensive freight. But it was not always a matter of cheaper scrap and more expensive freight. Leading up to the grain season, many owners would want their ships to get a cargo heading to Brazil or Argentina so they could return with a grain cargo from there. As a result, some of these freight rates were very good, making these U.K. movements feasible.
To the U.K. suppliers, this was a welcome alternative instead of just another shipment to Spain, Turkey or Pakistan. Yup, that was also doable in those days. Pakistan was another such U.K. special source. I never quite figured out if it had something to do with the large Pakistani expat community living in the U.K., but the fact was, all of our Pakistan cargoes in the '80s and '90s sailed from U.K. ports like Liverpool, Newcastle, Avonmouth and even London Docklands. Yes, there was a deep-sea exporter next to what is now a financial center at Canary Wharf.
2011 to 2016
Clearly, the demand for scrap imports was slowing down and Brazil was heading for an economic crisis as President Dilma Rousseff took office in January 2011. Despite all the economic changes promised, she somehow was not able to deliver, and her presidency was marred by all kinds of stories of corruption.
The Brazilian currency started to weaken as the real devaluated slowly but steadily against the U.S. dollar, i.e., the scrap buying currency. Every day saw new lows. That currency drop continued on a slow freefall until about February 2016, when some normalcy returned as President Michel Temer took over.
Some observers have gone as far as to call the economic conditions during Rousseff’s presidency a depression. If memory does not fail me and my info is correct, Brazil did not import any scrap from 2011 until about 2016. Nada, as they say in Brazil!
2016 to 2020
As the real stabilized and the Brazilian economy started to improve, before you knew it there was an abundance of scrap available in Brazil. So much so that they even started to export it in containers.
As I have often said, “Scrap is a product of affluence,” and this was such a perfect example where the economic situation improved, people suddenly spent more, built more, threw out more of the old, bought more new goods, and all this generated more scrap.
I also am convinced that a lot of old scrap that was just lying around in Brazil for decades (because none of it was ever exported) also contributed to the extra available tonnage. Like the communist countries who had never exported a ton of scrap until the Iron Curtain came down and were awash with scrap, so too was Brazil flush with scrap. And voilá, Brazil went from a net importer of scrap to becoming an exporter. Until the COVID-19 coronavirus, that is.
2020 to Carnival 2021
Brazil was hard hit by the COVID-19 crisis, and its lockdown was bad news for its steelmaking as well as its scrap industry. With steel production almost at a standstill, far less steel was produced. With construction and demolition at a standstill, no scrap was generated. As a result, when the country reopened, there was a sudden shortage of steel products and ferrous scrap in Brazil.
At first, Brazilian steelmakers like Gerdau and slab producer CSP in Pecém, Brazil, ramped up their scrap imports by looking for large bulk cargoes. Eventually, as the greater need for scrap in Brazil was realized, the nation’s previous container exporting stopped, and that tonnage turned inland to be melted by the domestic steel mills.
The demand for scrap imports for Brazil is looking healthy for 2021, however, and possibly going forward beyond that. It remains to be seen if and when Brazil’s container exports will return.