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Mexico Metals Report Q4 2012
Business Monitor International, October 2012, Pages: 44
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.
BMI's Mexico Metals Report for Q4 2012 examines the competitiveness of Mexican steel and warns that recent electricity price hikes coupled with the appreciation of the peso are undermining the industry's competitiveness both at home and abroad. The report examines the enormous long-term potential of the local steel industry and assesses the investment strategies of producers in a domestic market environment that offers considerable room for growth.
In the first seven months of 2012, Mexican crude steel production fell 1.6% year-on-year (y-o-y) to 10.36mn tonnes (mnt) following a strong performance in 2011 when output grew 8.6% to 18.1mnt. In H112, Mexican steel consumption totaled 12mnt, up 17.3% y-o-y, leading to a 48.3% rise in imports to 5.2mnt. Meanwhile, steel exports declined by 19% y-o-y to 2.5mnt as the US market went into decline.
The disappointing performance came despite strong growth in the automotives sector, which saw output grow 13% y-o-y on the back of 15% growth in exports. The decline in Mexican output helped cancel out Brazil's contribution to Latin American steel output growth.
With flat steel growth generated by the resurgent automotives sector, the main challenge comes in the longs segment. Growth of 4.1% is forecast for the construction sector in 2012, which should support domestic long steel production. In the long-term, the US$400bn investment under the second National Infrastructure Plan (NIP) over 2013-18 should provide a sustained source of income for long steel,
although Mexico has a patchy record of implementing infrastructural programmes on time. A further challenge will come from rising electricity prices. Given that approximately 70% of Mexican steel output is derived from electric furnaces, this trend is affecting profitability.
Over the last quarter BMI has revised the following forecasts/views:
- With Mexican consumption and production levels going in opposite directions, BMI has revised up the consumption growth forecast from 5% to 12%, while the crude steel production growth forecast has fallen from -1% to -2%.
- There is much to suggest substantial further peso strength over H212 and going into 2013, which would serve to make steel exports less competitive, and may provide some downside risk to the outlook for the steel industry.
- Looking further ahead to 2013, we expect a strong rebound as exports of manufactured goods pick up. An upward revision in the growth rate forecast for this year coupled with base effects also supports stronger performance. As such, we retain our forecast of 19.5mnt output in 2013,
an increase of 9.5% y-o-y.
- Altos Hornos de México (AHMSA)'s Fénix Project aims to increase the steelmaker's production capacity to 5mnt by the end of 2012, but BMI believes that the positive impact will largely be felt in 2013.
Executive Summary 5
SWOT Analysis 7
Mexico Economic SWOT 7
Mexico Business Environment SWOT 8
Industry Forecast 9
Table: Mexico – Steel Production & Consumption ('000 tonnes, unless stated otherwise) 12
Table: Mexico – Steel Industry Historical Data ('000 tonnes, unless stated otherwise) 13
Macroeconomic Outlook 14
Investment To Bolster Growth 14
Table: Mexico – GDP By Expenditure, Current Prices Breakdown 16
Commodities Forecast 17
Steel Price Forecast – Steel To Average US$360/tonne In 2013 17
Table: Steel Forecast 17
Table: Global Steel Forecasts 23
Commodity Strategy – Monthly Metals Update 23
Aluminium: Support At US$1,800/tonne Likely To Hold 25
Copper: Relative Outperformer But Still Weak 27
Iron Ore: Don't Bet On A Sustainable Recovery 29
Lead: Potential For Short-Term Rally 31
Nickel: No Turnaround Coming 32
Steel: More Pain Ahead 33
Tin To Outperform 34
Zinc: Little Room For Optimism 36
Table: Select Commodities – Performance & BMI Forecasts 37
Competitive Landscape 38
Company Profiles 40
Table: ArcelorMittal – Key Financial Data 42
BMI Methodology 43
How We Generate Our Industry Forecasts 43
Cross Checks 43