Latin America steel demand to fall in 2022 -industry report

© Reuters. FILE PHOTO: Rebars are pictured at Kalisch Steel factory in Ciudad Juarez, Mexico March 27, 2018. REUTERS/Jose Luis Gonzalez

By Kylie Madry

MEXICO CITY (Reuters) - Steel demand in Latin America could dip through 2022 as the industry faces regional inflationary pressures, price hikes from the Russian invasion of Ukraine and political instability, an industry report showed.

The regional steel sector rebounded in 2021 following coronavirus-related restrictions in 2020, topping previous production levels, according to the report from the Latin American Steel Association (Alacero) shared with Reuters.

The expected drop in demand in 2022, around 2%, is due to "a cocktail of three big factors at once," Alacero President Alejandro Wagner told Reuters.

With the attack on Ukraine causing energy prices to skyrocket, as well as inflationary strains and unpredictable election cycles in Latin America, the largest steel-using industries, like construction and auto production, have shrunk so far in 2022, the report showed.

The construction sector in Latin America contracted 3% in the first quarter, while the automotive sector fell 1.2% year-over-year from February to April, Alacero's report said.

GRAPHIC: Latin America steel consumption https://graphics.reuters.com/LATAM-STEEL/jnpweozodpw/chart.png

In Mexico alone, the construction sector contracted 0.2% year-over-year in May, while its mining sector shrank 1.7%, according to the country's statistics agency.

Demand could recover by 2023, growing some 4% from this year, Alacero said in the report.

But much is up in the air due to political uncertainty, industry experts throughout the region have told Reuters.

In Argentina, which has seen painfully high inflation this year, the government is looking to offset debts with exports from a $1.5 billion pipeline from its Vaca Muerta shale deposit, one of the largest in the world.

A contract to construct the steel pipeline was granted to Tenaris in June after years of delays.

Infrastructure projects like the Vaca Muerta pipeline could give Latin America, and the steel industry, a much-needed boost, Wagner said.

"This puts us in a privileged position, and we have great steel companies and engineering with the capacity to carry out the titantic task of building pipielines, creating direct and indirect jobs," he said.