Brazil's steelmakers will in 2011 produce and sell less in the domestic market than earlier expected as softer economic growth hits demand, an industry group said Tuesday.

Brazilian Steel Institute IABr has cut its previous estimates for output growth and for demand by 8% and 9% respectively, as various industries have reduced their demand for steel because of higher interest rates, the institute's executive president Marco Polo de Mello Lopes said at an event in Rio de Janeiro.

"Continuing intense competition from steel import levels and high inventories" are also curbing production growth, he said.

Crude steel output in 2011 is now seen growing 10.5% from last year to 36.3 million metric tons, due to the bringing into production of a new steelworks, Lopes said. However, this is lower than the 39.4 million tons forecast earlier this year, and considerably below the industry's current capacity level of 47.9 million tons.

The new steelworks, Companhia Siderurgica do Atlantico SA, a joint venture between ThyssenKrupp Steel and Brazil's Vale SA (VALE, VALE5.BR) produces exclusively for the export market, and will boost Brazil's steel exports by 24.8% to 12.22 million tons this year, Lopes said.

Steel consumption in Brazil is meanwhile expected to fall 0.9% year-on-year in 2011 to 25.87 million tons of products, of which 12% will be supplied by imports, the executive said.

In 2010, Brazil's steel consumption of 26.1 million tons was supplied 21% by imports.

Imports of steel products may fall to 3.4 million tons this year, 42.4% below 2010's record levels of 5.9 million tons, "but are still considerably above Brazil's normal import levels of 2 to 3 million tons a year," he said.

The continuing flood of steel imports, made cheaper by the appreciation of Brazil's real currency, is especially worrisome, Lopes said. "Brazil is experiencing a strong wave of deindustrialization because of growing imports," Lopes said. "Brazil's also going back to exporting more raw materials," he said.

Planned new investments in Brazil's steel industry could be in jeopardy because of the slowdown, coupled with excess global production capacity, the IABr president said.

Some $30.7 billion worth of investments are planned by Brazilian and international partners in new steelmaking capacity in Brazil through 2016, which would boost output capacity by 12.1 million metric tons.

"Everyone's stopping now to see what is going to happen. The red light is on," said Lopes. Uncertainties about economic growth at home and abroad are weighing on an industry that can already produce much more steel than the world consumes, he said.

Brazil's own crude steel capacity is 66% more than the country consumes, while global excess steel capacity is estimated at 532 million tons, Lopes said.

"Brazil is no longer a competitive place to produce steel," Lopes told reporters. Local producers are faced with a tax burden, electrical energy prices and labor costs which are higher than in many other steel producing countries, and greater control is still needed on the prices and quality of steel imports, he said.

The Brazil steel sector may request the government to raise steel import tariffs in a move to help protect local investments in the industry from the continuing "threat" of imports, he said.

"We're negotiating," Lopes said. "It's an emergency."