The Mexican steel sector, pushed
by strong demand from the automotive and energy industries, has
been more resilient than the U.S. steel market, continuing to
see steady growth even during the second half of 2012. It
hasnt been without its headwinds, however.
Surging imports and the
possibility of weaker demand in 2013--should the United States
economic growth stall amid political wrangling over the debt
ceiling and deficit spending--still pose risks.
Mexico did not take as big
of a hit as the United States during the (global) financial
crisis and, as its downturn wasnt as pronounced, it was
able to stabilize quicker, said Al Zapanta, president and
chief executive officer of the U.S.-Mexico Chamber of Commerce.
The Mexican economy has recovered to a decent level.
While it isnt a great economy right now, it isnt
bad either. It is fair to middling.
Mexico has seen 3.8-percent
gross domestic product (GDP) growth in 2012, although that
growth could cool slightly to 3.3 percent in 2013, according to
the Organization for Economic Cooperation and Development,
influenced by the economic situation in other countries,
particularly the United States, before recovering to 3.6
percent in 2014. This is quite stronger than the U.S. GDP,
which increased to an annualized 2 percent in the third quarter
from 1.3 percent in the second quarter, according to an advance
estimate by the U.S. Bureau of Economic Analysis.
There also is uncertainty about
some Mexican policies for the next six to 12 months, with the
nation in the midst of a presidential transition as Enrique
Pena Nieto assumes power and replaces Felipe Calderon, Zapanta
president and chief operating officer of Chicago-based Feralloy
Corp., attributed this nice growth rate in
Mexicos manufacturing sector to strong foreign
investment. Across the board, there are more foreign
companies coming into Mexico, especially with the inflation of
labor costs in China. Mexico is becoming the next low-cost
production country for a number of manufacturing companies,
especially for those based in the United States, he
Phillip M. Wylie, president of
Chicago-based Ryerson Inc.s southwest region, agreed,
stating that Mexico is well positioned to service U.S.
However, foreign investment, as
well as certain other factors like escalating imports, has put
a lot of pressure on Mexican steelmakers, Zapanta said, noting
that Mexicos steel industry is nowhere near what it was
20 or so years ago.
Mexican steel demand has
recovered quite nicely since the financial crisis, Christopher
Plummer, managing director of Metal Strategies Inc., West
Chester, Pa., said. The countrys apparent steel
consumption was expected to total a record 21.5 million tonnes
last year, up from 18.1 million tonnes in 2011, and is expected
to increase another 6 percent to 22.8 million tonnes in 2013.
It has been increasing each year since 2009, when Mexican steel
consumption fell to 14 million tonnes.
A lot of that demand is being
driven by a strong automotive sector, Rodriguez-Borjas said,
pointing to new investments by Ford Motor Co., General Motors
Co., Honda Motor Co. Ltd., Mazda Motor Corp., Nissan Motor Co.
Ltd. and Volkswagen AG.
Mexican auto production last
year was expected to reach a record 2.9 million vehicles, up
from 2.5 million in 2011, according to Plummer, and he
forecasts that output will reach nearly 3.5 million vehicles by
2015, driven largely by demand from the United States and
elsewhere in the world as vehicle purchases by Mexicans remain
However, Zapanta said that could
change over time as the Mexican middle class has been
Geoff Gilmore, president of the
Columbus, Ohio-based Worthington Steel Co. subsidiary of
Worthington Industries Inc., pointed out that Mexico has
attracted both automakers and their Tier 1 and Tier 2 parts and
components suppliers, as well as the steel mills, service
centers, processors and fabricators that service them.
One area of potential growth is
Mexicos energy sector, Rodriguez-Borjas, said, noting
that there are already a number of natural gas and oil
pipelines being constructed in Mexico. In the next five
years or so, I expect to see big growth in that sector,
It makes sense, given
Mexicos location on the Gulf, Jeff Simons, vice
president of sales and marketing at ONeal Steel Inc.,
Birmingham, Ala., said, but noting that Mexicos poor
infrastructure could hold back growth. Once that is
better developed, it could provide significant
Mexico has had difficulty
meeting growing demand for energy, especially natural gas,
Plummer said, even though drilling activity there increased
about 18.5 percent through the first seven months of 2012.
This has resulted in steelmakers, as well as others,
paying higher prices for natural gas, he said.
The Mexican Federal Electricity
Commission has been pushing to have more natural gas pipelines
built, Zapanta said. According to a report from the Mexican
Secretariat of Energy on the natural gas market through 2026,
eight pipelines stretching about 3,107 miles across Mexico have
already been proposed. These projects reportedly would require
tens of thousands of tonnes of steel products, and Mexican
steel association Canacero is looking for the pipelines to have
a minimum 60-percent local steel content.
The Mexican government also has
been pushing to improve its transportation infrastructure,
including roads, bridges, railways and ports, Zapanta said.
Rail infrastructure improvements could be particularly
important, given that there is a need to connect the
nations two Class 1 railroads with each other and with
Veracruz and other major ports due to the increased desire to
utilize rail to move freight. This desire has been accentuated
by concerns about crime in Mexico, he said. The situation
has been blown up out of proportion by the press. Most of the
deaths are bad guys killing bad guys, not tourists or
Nevertheless, crime concerns
have increased the use of rail, as it is a more secure mode of
transportation than trucking, he said. Crime--both metal thefts
and that involving drug cartels--hasnt dampened
investment in Mexico. Companies have just become more
strategic and tactical about their investments. We arent
seeing much new investment in the (north) but rather in other
areas of the country, which are more secure, Zapanta
ONeal hasnt had any
issues moving material as a result of crime, Simons said.
We have, however, implemented travel restrictions for our
workers. They are under rigid rules as to where they are
allowed to go and when and who needs to be with them.
Not all of Mexicos
increased steel demand was met by domestic mill shipments,
which Plummer said would be down 2.5 percent last year due
partly to a 44.1-percent surge in imports to 9.8 million tonnes
from 6.8 million tonnes in 2011.
Some of those imports resulted
from the structural deficit of high-quality flat-rolled steel
in Mexico, and therefore were welcomed into the country,
Plummer said, while some had come from the ramp-up of the
ThyssenKrupp Steel USA LLC mill in Calvert, Ala.
However, Rodriguez-Borjas said
that some of Mexicos imports of commercial-grade steel,
especially from Russia and China, have been more of a problem,
as they have been arriving at very low prices. There are
some trade cases in the works to protect domestic producers
from these imports, he said.
Mexicos imports likely
will start falling when a number of steel production capacity
projects come online, Plummer said. South Koreas Posco
Ltd. is doubling the capacity of its auto sheet plant in the
country by adding two 450,000-tonne galvanizing lines, the
second of which is due to be commissioned in mid-2013. Ternium
SA is installing a 450,000-tonne galvanizing line at its
joint-venture facility with Nippon Steel Corp. near Monterrey.
That line also is expected to be operational in 2013, as is a
40-percent increase in crude steel capacity at Altos Hornos de
Mexico SA de CV. And Gerdau Group has resumed its joint-venture
project to build a greenfield facility with Aceros Corsa SA de
CV to produce 1 million tonnes of crude steel and 700,000
tonnes of structural profiles annually starting in late
The direction of Mexicos
steel industry in 2013 lies largely with the United States,
Rodriguez-Borjas said. As the United States goes, Mexico
goes. If there is another big economic slowdown in the United
States, Mexico will feel it.