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Mexico Metals Report Q1 2011
Business Monitor International, Feb 2011, Pages: 43
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.
Mexico is poised for strong growth in steelmaking as the industry benefits from solid local demand, rapid export growth and anticipated investment into capacity expansion in the steel sector over the next five years, according to this latest Mexico Metals Report from BMI.
In 2010, Mexican crude steel output grew 20% year-on-year (y-o-y) to 16.63mn tonnes, slightly below BMI’s forecast of 16.87mn tonnes. However, concerns exist that the recovery is not continuing at the pace the country’s steelmakers had hoped, as the downstream manufacturing sector struggles. According to Canacero, the Mexican steel sector will expand by around 15% in terms of production and consumption in 2011, based on economic growth of 4% and continued growth in exports to the US, as well as a revival in residential housing construction. BMI is slightly less optimistic due to lower construction and GDP growth forecasts, anticipating a 13.6% rise in crude steel output to 18.89mn tonnes in 2011. Although construction sector growth should average 4% annually in 2011-15, it will largely be stimulated by the National Infrastructure Plan (NIP), which is aimed at addressing the bottlenecks in infrastructure capacity rather than residential housing.
The shift in industrial capacity from the US to Mexico should support local metals consumption over the medium term, rising to above 21mn tonnes in 2015 from an estimated 15.61mn tonnes in 2010 and backed up by rises in iron ore output. In addition to its proximity and trade ties with the US, companies investing in Mexico are attracted to its low manufacturing costs, a relatively stable currency and the emergence of an international standard compliant supplier base. In terms of the business environment, recent tax reforms show promising signs of simplifying bureaucracy and thus helping reduce corruption. Major infrastructure development initiatives by the government will further encourage new investment in the country. These factors, coupled with the fact that the country has the largest number of free trade agreements in the world, undeniably position Mexico as a strong production base. The recovery from the economic crisis has put Mexico’s hopes of securing a higher rate of growth over the medium term back on track.
As a result of higher than expected output growth in 2010 and the expectation that this will be sustained into 2011, BMI has raised the hot-rolled steel output forecast for 2011 from 13.5mn to 16.22mn tonnes and we expect, due to new investment, it to reach just over 19mn tonnes in 2015. This will be supported by an increase in exports from an estimated 5.19mn tonnes in 2010 to 9.12mn tonnes in 2015. BMI expects future growth in steel exports to come from the country’s diversification to other markets in and outside Latin America. Increasing demand from European markets means the industry holds a competitive advantage over other markets, which makes it profitable for metals producers to establish production units in the country. As such, in 2011 the Mexican steel industry will easily pass pre-recession levels of output and exports, in sharp contrast with production in mature markets, where output will stagnate with lower levels of capacity. There is increased confidence that Mexico’s annual production capacity will meet the target of 32mn tonnes by 2020. Canacero projects investment of MXN11.55bn over 2010-15, a 29% increase over the previous five year period.
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