(Bloomberg) -- Brazilian steelmaker Gerdau SA will reduce its output of specialty steel in the US next month as an ongoing strike by the United Auto Workers is set to hit demand from auto-parts manufacturers.
The decision should impact Gerdau’s financial results in North America, with the extent of losses depending on the length of the strike, Chief Executive Officer Gustavo Werneck said Wednesday in an interview in the sidelines of a conference in Sao Paulo.
The UAW plans to expand its strike on Detroit’s legacy automakers on Friday if there isn’t major progress in negotiations. The UAW began a walkout at plants operated by General Motors Co., Stellantis NV and Ford Motor Co. on Sept. 15 and a week later expanded the strike to 38 more GM and Stellantis plants. Gerdau’s top executive said a lingering dispute will inevitably have a domino effect on demand for the special steel needed to produce auto parts, affecting the company’s operations.
The Sao Paulo-based company is investing $280 million to boost its annual production capacity at its US facilities — mainly in Texas — to 2.2 million tons, an increase of about 47%. The North American division accounts for about half of Gerdau’s consolidated earnings excluding items.
Werneck also commented on market impacts of the bidding war for United States Steel Corp., saying an acquisition of the iconic steelmaker will result in consolidation of the flat steel industry. Meanwhile, he sees a balanced US market for long steel products such as rebar, rails and wire rod, with the Inflation Reduction Act and the return of projects to the US from Asia likely supporting demand for the next five years. He also expects President Joe Biden’s infrastructure bill to be reflected in orders next year.
The CEO also said he is bearish on China’s economic recovery since steel consumption in the Chinese property market won’t recover in the short term, which means the nation will have a lot of the metal to export and flood global markets.
given weak domestic demand for steel, which is underscored by the high volume of exports of the Chinese metal at subsidized prices. Brazil will be one of the most affected markets if the Brazilian government doesn’t take urgent measures within the next 30 days, including meeting the request from the steel sector to raise import taxes to 25%, Werneck said.
“We’re on the verge of making very difficult decisions in the sector, starting the process of mass layoffs,” he said. “Gerdau will be no different.”
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