Trade Defense Vacuum Threatens Steel Investment
Brazilian steel giant Gerdau is signaling potentialreductions in its ambitious investment plans as the company grapples with whatit describes as insufficient government action against low-priced Chinese steelimports. During its Q1 earnings call on Tuesday, CEO Gustavo Werneck revealedthat while the company's 2025 capital expenditure remains unchanged at 6billion reais ($1.06 billion), investments beyond this year are now underscrutiny. "What we are currently discussing is capex starting next year,whether we will maintain levels close to 6 billion reais or not," Werneckstated, emphasizing that decisions would hinge on forthcoming governmentpolicies.
May Deadline Looms for Government Action
The Brazilian government faces mounting pressure tostrengthen its trade defense mechanisms against steel imports. In May,officials are expected to announce an update to the steel import quota regimeimplemented last year, which Gerdau executives characterize as ineffective.Despite Brazil raising tariffs on steel imports to 25% from 10.8% in responseto rising imports, primarily from China, Gerdau maintains these measures havefailed to stem the tide of foreign steel flooding the domestic market. Industrysources indicate Gerdau has effectively imposed a deadline for meaningfulgovernment intervention before reconsidering its investment strategy.
Substantial Q1 Investment Despite MarketChallenges
Despite these concerns, Gerdau invested 1.38 billion reais($244 million) during Q1 2025, with 70% allocated to its Brazilian operations.This substantial outlay underscores the company's continued commitment to theBrazilian market, at least in the short term. "We currently have a verycomfortable cash position that would allow us to continue investing at evenhigher levels," Werneck noted, highlighting that financial constraints arenot driving the potential investment pullback. Instead, the hesitation stemsdirectly from what the company perceives as inadequate trade protection.
Strategic Projects Advance Amid Uncertainty
Several key projects remain on track despite the uncertaintrade environment. In March, Gerdau opened its flat steel rolling millexpansion, adding 250,000 metric tons per year of hot-rolled coil productioncapacity. The company reports that the project ramp-up is progressing asexpected, with the mill planned to reach full capacity in the second half of2025. Additionally, the Itabiritos project, which will add 5.5 million metrictons per year of iron ore production capacity, has reached approximately 65% physicalprogress and 50% financial progress. This initiative is scheduled to beginoperations in December, with ramp-up expected to be completed within a year.
Mexican Automotive Investment Scrapped
In a separate but related development, Gerdau has canceledplans for a greenfield steel plant in Mexico that was initially announced in2024. The project, which would have added 500,000 metric tons of annualspecialty steel capacity with an estimated investment of $600 million, wasprimarily aimed at serving the automotive market. "We canceled thisinvestment plan in Mexico because we now understand that global tariff issueswill bring structural changes to the automotive market there," explainedWerneck. "Our decision is based on the uncertainty surrounding how theglobal automotive supply chain will be reconfigured." This cancellationfurther illustrates how trade tensions are reshaping Gerdau's global investmentstrategy.
Industry Calls for Stronger Tariff Regime
Gerdau has been vocal in advocating for more robust trademeasures. Industry sources suggest the company believes the current 25% steeltariff is insufficient to counteract the influx of low-priced steel imports.Some reports indicate Gerdau has proposed increasing import tariffs on steelproducts to 35%, arguing that more aggressive measures are necessary to levelthe playing field for domestic producers facing competition from heavilysubsidized Chinese manufacturers. The outcome of these discussions could provepivotal for the future of Brazil's steel industry.
Key Takeaways:
* Gerdau invested $244 million in Q1 2025 but isconsidering reducing future capital expenditures beyond its current $1.06billion plan for 2025 due to inadequate government action against Chinese steelimports
* The Brazilian government is expected to announce updatesto its steel import quota regime in May 2025, with Gerdau waiting for thesedetails before making decisions about future investments
* Gerdau has canceled a planned $600 million investment ina Mexican specialty steel plant due to uncertainty about how global tariffissues will affect the automotive supply chain.
