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Mexico Metals Report Q3 2009
Business Monitor International, Aug 2009, Pages: 42
The Mexico Metals Report provides industry professionals and strategists, corporate analysts, metals associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Mexico's metals industry.
The Mexican metal industry is facing a very difficult environment both at home and in export markets due to the downturn in construction and the automotive industry, but the latest Mexico Metals Report forecasts strong growth in the long term, with the country likely to retain its position as the major steelmaking base in the Western Hemisphere outside the US.
In the first five months of 2009, Mexican crude steel output fell 38% year-on-year (y-o-y) to 4.92mn tonnes. The fall in output came after a rapid slowdown from September 2008, with output down by around 25% y-o-y in Q408. While the steel industry was reporting a modest uplift in orders in Q209, the author is not convinced the trend will be sustained and turn into a full-fledged recovery. Prices had not
recovered across the board, but had instead showed signs of bottoming out.
The greatest area of concern is in the flats market. Half of Mexico’s hot-rolled output is dedicated to flat products, which are suffering as a result of the collapse in the North American car market. Mexican car production volumes fell by 41.7% y-o-y in the January-May period, while auto exports declined by 41.5% y-o-y and car sales dropped by 30.6% y-o-y. With the car industry operating at just 25% capacity in H109, aluminium and steel product demand from the automotive industry has plummeted. Meanwhile, the country’s steel pipe industry is also suffering the effects of the financial crisis, with sales value down 60% y-o-y in H109. The domestic market is providing no relief for Mexican producers, with a severe economic downturn that the author expects will lead to a 5.5% contraction in GDP.
The economic crisis has put Mexico’s hopes of securing a higher rate of growth over the medium term into jeopardy, and there are lingering uncertainties over whether it will meet the target of 32mn tonnes per annum (tpa) by 2020. Mexican production capacity is expanding, yet domestic demand in Mexico for carbon and stainless steel sheet is falling. The author estimates that apparent steel domestic consumption fell 4.6% in 2008 to around 17mn tonnes. We forecast a further 30% drop to around 11.9mn tonnes in 2009 as key consuming industries have ground to a halt. The decline in steel demand is related to the decline in Mexico’s production of automotive and white goods as well as the contraction in mining, manufacturing and construction. Service centres have responded to the collapse in end-customer demand by cutting inventories and sharply reducing orders from mills.
The upshot of recession will be a 35% fall in hot-rolled steel output to just 9.75mn tonnes, with crude steel down 34% to 11.66mn tonnes. Rebar is set to fall 32% to 2.39mn tonnes and tubes and tube fittings will fall by a similar amount to just under 807,000 tonnes. However, the author anticipates a strong recovery in output from H210, in line with a recovery in demand and rapid expansion of capacity. By 2013, crude should exceed 22mn tonnes, an increase of around 27% over 2008 levels. A large amount of Mexican capacity is due to come onstream in coming years, but the author does not believe the domestic market will recover fast enough to absorb the extra output. It is widely expected that the Mexican industry will face less inflation pressure and better prices for raw materials than seen in 2008. While Mexico still has plenty of domestic growth potential (the author forecasts 2013 apparent finished steel consumption of 18.22mn tonnes, an increase of 7.6% over 2008), the recovery will be strongly led by exports as the country makes the most of a post-recession scenario where significant amounts of US steelmaking capacity are permanently taken offline.
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