The similarities that exist in the Mexican and U.S. markets for steel—and the challenges they are facing—are stark and profound. There is little argument that what affects the U.S. market for steel products has a direct impact on Mexico in almost every aspect, from demand to consumption to production to trade-related matters.
Those similarities and the strategies now being employed to meet the challenges brought to the industry by the global economic crisis were the key focus of AMM's 14th Annual Mexican Steel Conference in Monterrey. The conference took an in-depth look at the challenges through the eyes of experts from both sides of the border.
What transpired during the conference, which ended with plant tours of nearby facilities operated by Whirlpool Corp., Benton Harbor, Mich., and General Motors Corp., Detroit, was a historical perspective of how the markets have developed, followed by a brisk exchange of ideas on how economic and trade factors are impacting both steel producers and consumers in the United States and Mexico.
It was noted by several experts that long-standing problems remain in play. Some of them are specific to border-crossing, with a panel of transportation, trade and logistics experts explaining that tedious paperwork issues continue to delay shipments at the U.S.-Mexican border.
There are signs that some help finally may be on the way. Gloria Ballesteros, senior vice president of sales, marketing and asset management with the Kansas City Southern de Mexico railroad, said her company is investing heavily to improve infrastructure along its rail lines between Monterrey and Chicago and has purchased new locomotives, all aimed at improving the flow of goods. And Ricardo Arias, trade development manager with the Port of Houston Authority, said the port is in the midst of a significant expansion project in which bays and cranes are being modernized and other steps taken to improve access to the port for most goods, including steel products.
The tone for the conference was set largely by two highlight speakers who opened the proceedings. P.S. Venkat, chief executive officer of ArcelorMittal Mexico, told the conference crowd of about 250 that the Mexican government had put out a call to all steelmakers in the country to work jointly with the government to overcome the impact of the global economic crisis.
He said the government and industry must continue to work together to generate wealth through work and investment, noting that Mexican President Felipe de Jesús Calderón Hinojosa had urged government and industry to join forces where possible to spark infrastructure development and a trickle-down to increased steel consumption. Public investment in Mexico has been focused largely on urban initiatives and housing development, he said, and while those issues remain critical, infrastructure development and the need to battle unfairly traded imports remain key areas of focus for the steel industry.
Howard Booth, managing consultant at Hatch Consulting, Pittsburgh, told delegates that the U.S. economic stimulus package is a positive for both the U.S. and Mexican steel markets, given the closeness of the economies of the two countries. He warned, though, that economic stimulus is unlikely to translate into immediate steel demand.
Booth said that while steel production is expanding in Mexico, home-market demand is sliding as auto and appliance output has declined. There is considerable economic uncertainty in Mexico, and tight credit is forcing a re-evaluation of construction projects and durable goods purchasing programs. As Mexican demand slows, it creates the potential for more steel exports to Canada and the United States, but buyers in those countries don't need additional supplies.
As regional economies in Mexico plunge, sales of new, Mexican-built vehicles "will mimic trends in the United States and Canada and cause assembly cutbacks," Booth said, noting that Mexico also continues to battle inefficiencies in shipping logistics and the supply chain that make transportation of goods between Mexico and the United States more costly.
Sandy Simon, vice president of business development at Pacesetter Steel Service Inc., Atlanta, presented a historical perspective dating back to 2001 showing recent cycles of steel price, consumption and demand and said that while events surrounding this downturn are different, the results are predictable.
He offered the perspective of an American steel buyer looking to do more business with Mexico, pointing out that the most recent cycle, which began in late 2007, saw hot-rolled sheet prices in the United States jump from about $560 per ton at the end of the year to around $1,100 per ton by last August. Demand then quickly fell off, sending prices plummeting to current levels of close to $520 to $530 per ton, and stock prices for steel companies—like U.S. Steel Corp., Nucor Corp. and AK Steel Corp., among others—followed suit. "That left us in the chaos we're in now, but we've been there before," Simon said.
From the perspective of a major Mexican steel buyer, steel producers in the country are letting opportunities slip away, especially with regard to the use of high value-added steels. Carlos Barajas, global commodity director of steel global procurement operations at Whirlpool, said his company would like to buy more from Mexican mills but is forced to look elsewhere because many of the country's steel mills have chosen not to participate in the appliance market, which consumes higher-end steel. "I feel some of the mills just don't want to sell to us. We have to import some material because we don't find it in Mexico."
Barajas said Mexico is a low-cost producer with many advantages, such as availability of raw materials, qualified people, proximity to the United States and a closer business culture to the U.S. and Europe than many Asian competitors, and yet Mexican producers have failed to take advantage of their opportunities.
"Why do you (the Mexican steel industry) let Taiwan and South Korea take over the market for high-end steel?" he asked, noting that while Taiwan and Mexico have similar levels of steel production, Taiwanese exports of cold-rolled and coated steel outnumber those from Mexico by a factor of eight to one.