[ferro-alloys.com]Brazilian steelmakers are starting to cut their ferrous scrap prices and purchases, indicating tougher measures are to come as a result of the coronavirus outbreak, sources said Tuesday.

ArcelorMittal and Gerdau – the largest ferrous scrap consumers in the country – informed suppliers of price cuts at Real 100-150/mt for all grades of ferrous scrap, effective Tuesday, for purchases in the Southeast and Southern regions at least.

"Other steelmakers will soon follow suit," a scrap dealer said, noting price cuts may be larger in some cases, depending on the supplier.

Another dealer said mills might slash scrap prices further in the coming weeks. "Perhaps, another [cut of] Real 150/mt," he said, adding though that price cuts were not the biggest problem, rather it was the downsizing or discontinuation of purchases.

A third source said the reduction in scrap purchases was a precursor to the next more worrisome step: steel production cuts.

"It's inevitable. Mills are revising down their production targets amid this situation, especially after automakers announcing the temporary shutdowns, while the export market is paralyzed amid the pandemic," said a mill source. "Most [of the mills] are already introducing the production cuts, but not a complete halt, as it would be a disaster for the entire chain," he added.

The same source said mills could reduce their production by as much as 40% in the next two months, "losses that would be impossible to recover in the subsequent months."

Slab maker Ternium informed dealers that scrap purchases would halt Tuesday, with unloading and deliveries at mill yards permitted until Wednesday. "From now on, ongoing orders will be canceled," it said in a notice sent to suppliers seen by S&P Global Platts.

Brazilian export prices for slab steel have fallen about $40 since the beginning of the month, and were assessed by Platts at $415/mt FOB on March 20, in light of reduced demand from overseas, particularly from the US.

Companhia Siderurgica Nacional (CSN) has notified dealers of a deferral of payments for 30 days.

"This measure aims at maintaining operations in the face of the current calamity. Volumes already negotiated will be maintained and the company will keep deliveries normal upon the review of payment terms," CSN said in an email seen by Platts.

Usiminas said it "has not observed a significant impact on its activities so far," but, "is expecting a drop in its sales for the coming months, although it is not yet possible to make concrete estimates in this regard."

The slowdown is set to worsen as Sao Paulo, Brazil's economic powerhouse, began a two-week lockdown on Tuesday, a move that was followed by other big cities in the country. Local governments ordered all non-essential services and businesses to close.

Construction projects were therefore paralyzed in the nation's main cities, which will further hamper the recovery of the biggest steel consumer.

Brazilian mills have not yet made public any potential production cuts for the coming months, during which the federal government expects the outbreak to peak in Brazil.

(S&P Global Platts)

• [Editor:王可]