SAO PAULO (Reuters) - Stocks of Brazilian steel companies fell on Wednesday after the government said it would renew for 12 months a system meant to protect the national steel industry, but that steelmakers have said is ineffective.

WHY IT’S IMPORTANT

The steel industry began criticizing the quota system almost as soon as it was set up last year, saying it failed to control the flow of imports, mainly from China.

Under the system, as long as the import quota is not reached, steel products can enter the country if they pay import tax of between 9% and 16%. If the cap is exceeded, a 25% tariff applies, Brazilian government news outlet Agencia Brasil said.

MARKET REACTION

On the first day of trading following the announcement, CSN was down 4.4%, Usiminas (OTC: USNZY ) dropped 3.6% and Gerdau fell 1.2%. Brazil’s benchmark stock index Bovespa fell only 0.5%.

CONTEXT

The system, which has been expanded to now include 23 steel products, was already criticized by the sector for being too broad.

Tuesday’s government announcement retained the exclusion - also criticized by the industry - from the quota and tariff system of imports from countries that have trade agreements or negotiated special conditions with Brazil.

The steel sector has urged the government to renew the scheme with the inclusion of all steel products in the 25% tariff, as the European Union and the United States have done.

BY THE NUMBERS

Steel imports rose 27.5% year-on-year in the first four months of 2025, reaching 2.2 million metric tons, according to data from the country’s steel mills association, Aco Brasil, which did not comment on the matter on Wednesday.

(By Alberto Alerigi Jr; Writing by Isabel Teles; editing by Barbara Lewis)