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Mexico Metals Report Q1 2010
Business Monitor International, Jan 2010, Pages: 46
Business Monitor International's 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.
Mexico’s crude steel production strengthened in Q409 to surpass 2008’s monthly output for the first time in the year, although volumes will not make a solid return to pre-crisis levels until 2011. Production in October hit 1.44mn tonnes in an 18% year on year (y-o-y) jump and an increase of 34% on the previous month. Production in November dipped slightly month on month (m-o-m) to 1.4mn tonnes but was 31% up on the same month in the previous year. Deteriorating output, which began in Q408 and reached levels not seen since January 2002, seems to have definitively reversed in the final quarter of 2009. While production gains in Q209 and stabilisation in Q309 were mostly due to the completion of destocking, increases in the final quarter reflect modest improvement in demand. BMI expects crude steel demand in 2010 to increase accordingly by 9% y-o-y to 21.79mn tonnes.
Nonetheless, Mexico’s iron and steel chamber Canacero expects total crude steel production for 2009 to fall by 21% on the previous year to 13.6mn tonnes, and BMI maintains its view that the country’s steel market will not recover to pre-crisis volumes until 2011. Despite growth in Q409 the country remains under the shadow of the US economic crisis and concerns are growing that the spate of positive data from the U.S. may soon be eclipsed by a renewed recession, triggered as the country’s US$787bn stimulus package fades. BMI sees a 17% y-o-y strengthening in steel exports in 2010 but does not expect a return to pre-recession volumes until 2011.
Even in the absence of a prolonged recession to the north, there is increasing scepticism in Mexico on an export-driven recovery in 2010. Canacero expects any revival in steel production to largely come from stronger domestic demand as a result of the housing and infrastructure sectors. In any case, BMI does not expect crude steel consumption to approach pre-crisis levels until the domestic economy returns to strong rates of growth from 2011. Consumption may be crimped if the country’s GDP growth decelerates on higher inflation as a result of the government’s tax increases in 2010. Designed to dent the country’s budget deficit, the tax hikes will most likely inhibit Mexico’s much-needed recovery. The government has come under increased pressure to address the deficit after Standard & Poor’s lowered the country’s rating from BBB+ to BBB.
Lacklustre forecasts for 2010, combined with a 60% operational capacity in Mexico, have continued to suppress expansions and greenfield projects in the country. In Q409, several steelmakers denied the cancellation of projects announced before 2008, but were unwilling to provide provisional schedules. It is clear that steelmakers in Mexico are continuing to wait and see whether solid demand growth is underpinning the recent rebound in production. BMI forecasts strong y-o-y growth beyond 2011, with crude steel production exceeding 27mn tonnes and demand surpassing 31mn tonnes in 2014.
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