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As certain as Brazilians are to celebrate Carnival every year, the predictability of the nation’s ferrous scrap industry is as uncertain.

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 festival. While these cities might have something in common for that one week, when it comes to ferrous scrap, Brazil is set apart from Italy, Germany and the United States.

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 its ferrous scrap exports to suddenly ramping up imports of this material while experiencing similar fluctuations in the amount of domestic scrap it is generating.

Because 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 handled: 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 Metallgesellschaft, Phillip Bros. and Marc Rich, in the enviable position of having direct access to the producers to be able to gauge their buyers’ raw materials requirements daily.

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 have identified several periods 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, a bulk exporter was in Miami 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, 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 cut short 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 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 that 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 rebar 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 wanted to see what we were 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 after the buyer’s rep signed off on the quality.

I could tell many more nightmare stories of buyers’ reps from across the globe, each one with their own idiosyncrasies, but those, too, are stories 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. 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 of demand. 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, a deep-sea exporter was 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.

Over the 35 years I have been in the ferrous scrap trade, I have identified several periods with a very distinct rhythm of scrap activity for Brazil.

The Brazilian currency started to weaken as the real devalued slowly but steadily against the U.S. dollar, i.e., the scrap buying currency. Every day saw new lows. The real continued on a slow free-fall 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, an abundance of scrap was available in Brazil. So much so that it was even exported in containers.

As I have often said, “Scrap is a product of affluence,” and this was such a perfect example. As the economic situation improved, people suddenly spent more, built more, threw out more of the old and bought more new goods, all of which generated more scrap.

I also am convinced that much of the 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 that had never exported a ton of scrap until the Iron Curtain came down and they were awash with scrap, so too was Brazil flush with scrap. And, voila, Brazil went from being a net importer of scrap to becoming an exporter ... until the COVID-19 pandemic, that is.

2020 to Carnival 2021

Brazil was hard hit by the COVID-19 crisis, and its lockdown was bad news for its steelmaking industry as well as for its scrap industry. Steel production was almost at a standstill, meaning far less steel was produced. Additionally, with construction and demolition activity at a standstill, no scrap was generated. As a result, when the country reopened, Brazil had a sudden shortage of steel products and ferrous scrap.

At first, Brazilian steelmakers like Gerdau and slab producer CSP in Pecém, Brazil, ramped up their scrap imports by looking for large bulk cargoes. As the greater need for scrap in Brazil was realized, its previous container exporting stopped, and that tonnage was directed inland to be melted by the country’s domestic steel mills.

As of early 2021, demand for ferrous scrap imports into Brazil is looking healthy for the year ahead and possibly into the future. It remains to be seen if or when Brazil will resume its containerized exports of ferrous scrap. Stay tuned.

The author is the owner of New York-based Idoru Trading Corp. and can be contacted at nfruchter@me.com.