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Robust trade laws vital to Mexican steel success

Keywords: Tags  Máximo Vedoya, Teodoro González Garza, Guillermo Rey, Enrique Peña Nieto, Ternium Mexico, ArcelorMittal Mexico, Tubacero, steel Anne Riley

MONTERREY, Mexico — Forecast growth by Mexico’s steel industry could be at risk if the nation’s new administration does not adopt a more aggressive response to the swelling flood of low-priced imports, industry executives say.

"If Mexico is to grow, Mexico is going to have to grow through the industrial sector, and the industrial sector needs a policy for promoting local industry to the detriment of exports from China or (South) Korea," Ternium México SA de CV chief executive officer Máximo Vedoya said at AMM’s 18th annual Mexican Steel Forum in Monterrey, Mexico.

"We need to see the Mexican steel industry not lose its competitiveness, but rather be more competitive every day," said Teodoro González Garza, chief executive officer of Mexican tubemaker Tubacero SA de CV. "We don’t want protection. What we want is an equal playing field."

Mexico’s trade deficit with China has been growing rapidly in recent years, Vedoya said, with Mexico importing goods valued at $52 billion from China in 2011 vs. exports of $6 billion to the Asian nation. And Mexico exported just $1 billion worth of goods to Korea in 2011, a fraction of the $14 billion worth of Korean products that hit Mexican shores. Metal products and finished goods account for a major part of the trade deficit, Vedoya said.

"That is very bad, but it’s even worse when you break it down to see what Mexico imports from China. Mexico exports to China raw materials—iron ore, copper and other minerals—and imports manufactured, value-added goods (that require) employment, innovation," Vedoya said. "I think the new administration is aware of this, and I think the new government knows this is a problem."

Mexican president Enrique Peña Nieto took office in late 2012, and most industry participants say it’s too early to tell what kind of policies the new administration will support. However, early indications suggest that Peña Nieto’s government could be more aggressive when it comes to combating low-priced steel imports, executives said, giving some hope that relief could be in sight.

"It’s still very recent, but what we see is a receptiveness and an openness for dialogue (from the new government). We feel this is very positive," Guillermo Rey, chief marketing manager for ArcelorMittal Mexico, said during a panel discussion at the AMM forum.

González Garza agreed. "We have met with the Ministry of the Economy ... and they’re open, they’re listening. We are going to follow up and we expect ... that this administration will have a much better openness on commercial terms," he said.

More robust trade laws—including ones that would allow a faster response to low-priced imports—is one key policy item on most Mexican steelmakers’ agendas under the new administration.

"I would say that we need not only as a government, but as steel (associations), to be much faster, more agile on researching unfair practices on certain imports. We’re very slow; we generally begin to react when we’re already in the graveyard. We must be much faster," González Garza said.

But stronger, more-proactive trade laws aren’t the only possible solution to low-priced imports. Other possibilities include easing credit facilities for Mexican companies and implementing some kind of "Buy Mexican" provision for infrastructure projects, executives said.

"Why not include domestic content in infrastructure, much like ‘Buy America’ (and) as is done in many countries?" González Garza asked.

Implementing a competitive energy policy in Mexico also would help the domestic steel sector better compete on a global scale, industry leaders said.

"Mexico has to be more competitive. Today, electrical power in Mexico is 50 percent more expensive than it is in the U.S., let alone China," Vedoya said. "We can’t be competitive if the cost of energy is 50 percent higher than our neighbor to the north."

Mexican steel executives were quick to point out that there’s no one-size-fits-all approach to maintaining competitiveness, and what worked in China or Japan to grow global market share won’t necessarily be the best plan for Mexico. Nonetheless, most agreed that—especially with a new administration at the helm—the time for change is now.

"Growth is going to occur with a strong industry in Mexico; otherwise, growth is going to be much slower for Mexico," Vedoya said.

"Surely under these conditions, we’ll have a much stronger industry," González Garza said.

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