There are no conditions for a rail plant, Gerdau said

The possibility of Brazil has a national rail plant is minimal, because the country does not have a domestic market to justify the installation of a national unity to produce steel ingots, even under the effects of the concession package of ten thousand kilometers of new railroads – in addition to the approximately 20,000 km of network that is already used by concessionaires. This is the assessment of the main businessman of the sector in the country who would gather today, in fact, financial and political motivations to invest in a domestic rail plant. In an interview to Valor, Jorge Gerdau, who also chairs the Presidency chamber of management, performance and competitiveness, said that there is no possibility of setting up a structure that produces steel ingots in the country.

Gerdau have had a plan in the drawer to set up the plant in the country for a long time. We are in final studies on the subject and the truth is very complex, because the scale of a modern and competitive laminator is now three times higher than the future demand for rails in Brazil, Gerdau said.

According to the businessman, the limitations of the domestic demand are not the only obstacle to the undertaking. It is also necessary to consider the international scene that the steel industry faces today. There is also a fantastic excess of rail production in the world, with about 500 million tons of steel surplus. So, within the steel landscape today, in a low profitability transition, the economic and technical decision is tremendously complex, Gerdau said. This subject is not of Brazil, it is worldwide’s. There are very few plants in the world, with a huge overproduction. The big dilemma today, while investing in steel, is to have markets to support investment, not only on rails, but in any kind of production.

Asked if the decision to have a domestic plant should not be guided primarily by the strategic orientation of a national policy for the sector, Gerdau was more pragmatic. We have the responsibility to maintain the economic viability of a company, before its 140,000 shareholders. Decisions have to be both technical and economic. Today the market does not give a solution for this, he said. We have to keep working on the issue. We have interest to do so, but while I do not have a viable economic construction, to be approved by the board which represents the shareholders, this proposal is only for review, he commented.

Brazil had operation of rail plants by the Companhia Siderúrgica Nacional (CSN) until the 1970s, but the facilities were closed due to the obsolescence of the railroad sector in the country, from the 1980s.

Dependence on imported rails bothers the government, which tried to include, in notices to bid of new railroad concessions, rules that favor companies willing to use tracks to be made in Brazil. These are measures that have no practical effect – since there is no producer in the country –, but they act as a friendly act to potential investors.

In the notice to bid of the 477-km stretch of the North-South Railroad linking Açailância (state of Maranhão) Vila do Conde (state of Pará), a clause was included that would require the purchase of at least 75% of rails from the domestic market during the construction phase – and 50% during the network maintenance – in situations where the price of the product in the country would cost 35% more than the amount of the imported product. If it exceeds this margin, the company could acquire all products wherever it wants. The share of domestic content would be reduced annually, during the 35 years of the concession.

Hardly the gesture will have practical effect, at least in the short or medium term. The government, according to the Empresa de Planejamento e Logística (EPL), will bid the railroads in the second half, with actual start of works planned for the coming year. It is a very short deadline to be met by a facility in the country.

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