Iron and Steel Industry

Historically, iron and steel have been the backbone of industrialization. Throughout the 1990s world steel production remained flat: at the lowest, 720 million metric tons in 1992, and at the highest, 789 million tons in 1999. In 2000 worldwide production reached 845 million tons, steadily climbing to 1 billion tons by 2004. In 2005 the total production of steel reached 1,132 million metric tons. According to industry projections, worldwide production will continue to increase now that China and India have effectively entered the expansion phase of their consumption patterns.

Latin America's overall production of steel has increased, but its share of total world output has decreased. In 1992 Latin America's output was 27.5 million tons of steel, or roughly 6 percent of the total world output; in 2006 its output was 45.4 million tons (Brazil alone produced 31.6 million tons), or about 4 percent of world output. This loss in terms of proportion of world output is due to the rapid expansion in production in Asia. Moreover, steel output is often a reflection of the growth trajectory of gross domestic product (GDP), and Latin America has been growing more slowly than Asia in general. Brazil's economy, long the largest in the region, has been growing at a faster rate than that of other Latin American economies, which helps to explain its rank as number one among Latin American steel producers, accounting for 70 percent (up from 57 percent in 1992) of all steel in Latin America. The continent's oldest producer is Brazil's Companhia Siderúrgica Nacional (CSN), which reached 6 million metric tons in 2006. Aside from Brazil, only Mexico, Argentina, Venezuela, and Chile, in descending rank order, have the capacity to produce 1.5 to 2 million tons per year. These four countries are also the most advanced of the industrialized Latin American economies.

LATIN AMERICAN PRODUCTION IN A GLOBAL ECONOMY

The iron and steel industries in Latin America have had a checkered history, marked by alternate periods of foreign domination, nationalization, global competition, and privatization of the sector. All of Brazil's major steelworks were state-owned enterprises (SOEs) until the early 1990s, when the Brazilian government began to privatize. The country's largest integrated steel mill is in the early 2000s privately owned and managed by CSN. In Argentina, Mexico, and Chile, the mills are all in private hands. Venezuela is the sole Latin American country to retain state control over its steel company, the Corporación Venezolana de Guayana (CVG).

The major iron ore deposits in Latin America are found in Brazil, Venezuela, Chile, Peru, and Mexico. The quality of the ore mined in Brazil, Venezuela, and Peru is equal to that of the best in the world. Latin America produced 1 billion tons of ore in 2005; it exported 488 million tons and used the rest for domestic still production. Brazil's Companhia Vale do Rio Doce (CVRD) alone accounted for a third of Latin American production, with its 2008 production projected to reach 330 million tons. CVRD, which operates in sixteen countries worldwide in addition to fourteen Brazilian states, is a private firm, with the state retaining a minority share. It has diversified into steel mills, seeking to become a fully integrated company—from iron-ore production in upstream to steel-making downstream. This integration is vital for the success of the firm in the highly competitive environment of the global steel market.

Mergers and acquisitions were common among the world's steel makers and iron ore producers around the turn of the century. The trend is to build a globally integrated system. Rather than focus on a segment of the production process at home, CVRD, for instance, acquired coal deposits in Indonesia, Australia, and Mozambique and nickel mines in Canada; its strategy is to add more value to its massive iron ore deposits in Carajás and other mines in Brazil by obtaining uninterrupted access to processing materials for steel making.

Another strategy Latin American iron and steel firms are pursuing is forming supply networks with the world's major consumers. Japan and Korea have been ongoing buyers of Latin American iron ore; joining this Asian clientele is China, and India is not far behind. It may be cheaper for India's Tata and Mittal to feed their European mills with iron ore hauled from Latin America than with ore hauled from India. Other Latin American countries have taken steps to adapt to the globalization of the steel industry. In the mid-1990s Peru sold its iron-ore mining monopoly to Shougang of China, now Shougang Hierro Peru. Mexico has allowed foreign mining companies to operate in the country by granting them 100 percent economic rights of exploitation through a system of long-term leasing to circumvent the constitutional restrictions imposed on foreign ownership of Mexican land.

Iron and steel production is no longer considered the key sign of industrial prowess and the road to economic prosperity. Singapore, Hong Kong, Taiwan, and other political economies deficient in resources have achieved high levels of economic development by other means. Although Latin America remains overwhelmingly dependent on the export of nonrenewable natural resources for economic growth and development, its superior endowment in iron and steel cannot alone guarantee future prosperity for the region. Moreover, because there are many substitutes for steel, such as aluminum, plastics, ceramics, polymer, concrete, and other manufactured materials, the growth of steel consumption in Europe, the United States, and Japan may not expand as quickly as it did in the late twentieth century. Nevertheless, steel retains its primacy for construction, automobiles, and ship building, and China and India, at least for a period of some years, will import more iron and keep Latin American miners busy.

A CHANGING INDUSTRY

At one time, the production of steel and iron had considerable military and security implications. In many Latin American countries during the cold war, the desire for national security and fear of communist insurgencies convinced the military and civilian industrialists that self-sufficiency in arms production must become the national objective. From the 1960s to the 1980s, national security exigencies called for state-owned companies to provide steelworks with subsidized low-cost energy that enabled them to expand. With privatization, this is no longer an option. Often, the managers of state-owned enterprise (SOE) iron mines and steel mills came from the ranks of retired military officers. Decades of security-conscious military rule throughout Latin America reinforced this national security approach to economic development; at one time, Brazil, Argentina, Peru, and even Mexico considered the steel SOEs national security concerns. Also, a boom in civil construction, auto manufacturing, and infrastructure, as well as ship building in Brazil, increased demand for steel and stimulated the expansion of iron and steel industries. But globalization and the digital age have changed the old economic thinking and patterns of trade and development. The iron and steel industries in Latin America in the early twenty-first century are more export-driven and globally linked; their survival rides high on the demand coming from external markets in Europe and the United States, where smoke stack industries are dying, and in Asia, where steel consumption has been increasing and importing steel is cheaper than building new mill complexes.

New technologies, including the use of new alloys, that produce stronger and lighter steel have made steel making both more complicated and more expensive. The oil price crises in the 1970s and early 1980s forced automobile industries around the world to switch to aluminum, plastics, and other substitutes for steel to make cars lighter and therefore more fuel efficient. Steel does not require as much energy as aluminum or titanium (wherein energy accounts for 80 percent of production cost), but the energy cost becomes the critical factor in newer methods of steel production and marketing. Conservation, recycling, and environmental measures play a major role in determining the cost of steel making. There are reasons to anticipate a further structural change in the steel industry the world over. Given the high cost of energy, countries will be forced to abandon energy-intensive industrial projects.

See alsoCompanhia Vale do Rio Doce; Economic Development; Energy; Industrialization.

BIBLIOGRAPHY

Baer, Werner. The Development of the Brazilian Steel Industry. Nashville, TN: Vanderbilt University Press, 1969.

Companhia Siderúrgica Nacional. Available from http://www.csn.com.br.

Companhia Vale do Rio Doce. Available from http://www.cvrd.com.br.

Escobar, Janet Kelly. "Comparing State Enterprises across International Boundaries: The Corporacion Venezolana de Guayana and the Companhia Vale do Rio Doce." In Public Enterprise in Less-Developed Countries, ed. Leroy P. Jones. Cambridge, U.K., and New York: Cambridge University Press, 1982.

International Iron and Steel Institute. Available from http://www.worldsteel.org.

Marshall Lagarrigue, Isabel. Restructuring and Protectionism in the U.S. Steel Industry: The Impact on Brazil. 1987.

Martino, Orlando, Jerome Machamer, and Ivette Torres. The Mineral Economy of Mexico. Washington, DC: U.S. Department of the Interior, Bureau of Mines, 1992.

Mineral Commodity Summaries. Washington, DC: U.S. Department of the Interior, Bureau of Mines, 1978–.

Rakowski, Cathy A. Production and Reproduction in a Planned, Industrial City: The Working- and Lower-Class Households of Ciudad Guayana, Venezuela. East Lansing: Women in International Development, Michigan State University, 1984.

Weintraub, Sidney, ed. Industrial Strategy and Planning in Mexico and the United States. Boulder, CO: Westview Press, 1986.

                                            Eul-Soo Pang