RIO DE JANEIRO - Steelmakers here are adding hundreds of thousands of tons of new capacity for expensive galvanized steel as Brazil's automakers move to upgrade their corrosion-prone vehicles.
Most of Brazil's biggest cities are on the Atlantic coast, where sun, humidity and sea salt can rot a car in a few years. As a result, all of Brazil's 'Big Four' carmakers - Volkswagen, Ford, General Motors and Fiat - are moving to increase the amount of galvanized steel in car bodies.
Mario Sergio Salerno, an engineering professor at the University of Sao Paulo who studies the automotive sector, said the increased use of galvanized steel will mean higher car prices.
'Carmakers in Brazil have a small margin and traditionally prefer to produce less volume at higher prices,' he said.
Galvanized steel on the rise
GM do Brasil, which five years ago put galvanized steel into 50 percent of its car bodies, has increased that amount to 75 percent and plans to follow GM's worldwide target of putting galvanized steel into 95 percent of car body parts in the next three years.
Usiminas, the biggest steel supplier to the auto industry, in May signed a joint venture with Japan's Nippon Steel to install a $250 million, 400,000 metric tons-a-year galvanizing line, using Nippon-furnished hot-dip technology.
The Unigal joint venture, in which Usiminas will have a 60 percent stake and Nippon a 40 percent stake, is scheduled to go on line by September 2000 and will supply mainly the auto industry.
A spokesman for Fiat Automoveis, Fiat's subsidiary in Brazil, said between 30 percent to 40 percent of Fiat car bodies are made of galvanized steel.
'But we are increasing that to make our cars more corrosion-resistant. This is particularly important, given that we export 25 percent of the cars we produce and foreign buyers demand globalized standards of quality,' he said.
Fiat exported 107,000 of the 415,000 cars it produced in 1998.
Companhia Siderurgica Nacional also has plans to build, with Thyssen Krupp Stahl AG of Germany, a $250 million, 350,000 metric tons-a-year Galvasud hot-dip galvanizing line, service center and blanks production centers to serve the auto industry.
The plant, in which Companhia Siderurgica Nacional has a 51 percent stake and Thyssen 49 percent, will be in southeastern Rio de Janeiro state.
More galvanized steel needed
Anfavea, the national carmakers' association, projects the estimated 1.35 million vehicles to be produced in 1999 will grow by 4 percent to 5 percent a year as the country pulls out of its recession, reaching 2 million cars a year by 2002-03.
Because 500 to 550 kilograms of flat-rolled steel goes into making a car, the car industry by then will need 1.1 million metric tons a year of flat-rolled steel. An estimated 70 percent, or 750,000 metric tons a year, will be galvanized, given the increased use of such steel in cars.
Steel-sector analysts said Usiminas' and the Companhia Siderurgica Nacional's new galvanizing plants are one reason the Gerdau group, Brazil's biggest producer, recently suspended plans to build a $350 million steel mill.
They said another reason behind the Gerdau decision was Ford's plan to move a proposed $1 billion car plant from southern Rio Grande do Sul state, where Gerdau has headquarters, to northeastern Bahia state.
The Gerdau plant was to primarily serve the Ford plant, a $600 million General Motors plant in the state and a recently built $1 billion Renault plant in neighboring southern Parana state.