Despite demand not returning to pre-pandemic levels, there is positive sentiment in the Mexican steel market based on opportunities such as the current wave of nearshoring and the country’s deficit of steel products, according to Antonio Chabrand, treasury officer at Conadiac, which represents Mexican steel service centers and distributors.
“Nearshoring has not been capitalized as it should be in Mexico; however, it has generated investments,” Chabrand said in a recent video interview with S&P Global Commodity Insights.
“We have seen an increase in the construction of industrial warehouses in the north and lodging infrastructure in the south,” he said, noting the arrival of several Chinese companies in Mexico’s northeast.
According to estimates by the Mexican Association of Real Estate Professionals, or AMPI, the real estate sector will see a rebound of more than 1%, driven mainly by demand for housing in large cities.
However, the association highlighted two sectors that have driven the growth of the real estate sector. First is the industrial sector, which is responding to demand for space due to the arrival of companies in Mexico relocating near the US, a phenomenon known as nearshoring. The other sector is tourism infrastructure.
“The automotive and manufacturing industries have grown a lot but have not surpassed construction, the sector that consumes the most steel in Mexico,” Chabrand said.
Attracting investments
He said Mexico has three main strengths for attracting more investments from nearshoring: the United States-Mexico-Canada Agreement, the proximity to the US and qualified labor at a better price.
“We won´t see the growth of 2021 or 2022, but if we left out of the equation another pandemic or war, we expect to see a stable year, hoping that the political climate will give us more certainty with more spending in public infrastructure,” Conadiac President Roberto Gutiérrez told S&P Global Commodity Insights.
Even so, the biggest challenge will be demand itself when facing higher prices.
“We do not know the impact or duration of the approaching recession, but that will directly affect the pockets of our final consumers,” Gutiérrez said.
In late May 2022, as uncertainties caused by the Russia-Ukraine war eased, Mexican steel prices began a free fall due to low demand. However, prices rebounded in December, maintaining an upward trend during the first two months of 2023.
Platts assessed the weekly Mexican domestic R-42 grade rebar price up 1% Feb. 17 at Peso 21,000/mt delivered Northeast as mills announced a new round of increases, according to data from S&P Global.
Mexican rebar prices have increased 15% since the upward trend started at Peso 17,800/mt ($1,143.57/mt) Dec. 9.
On the other hand, despite the stability of prices in dollars, the assessment for Mexican hot-rolled coil saw pressure in Mexican pesos at Peso 16,200/mt ($882.19/mt) due to recent exchange rate volatility. Prices, however, are expected to continue to strengthen due to ongoing tight supply.
According to Conadiac, the first quarter is likely to remain bullish, but 2023 is expected to be stable in terms of prices.
Deficit of finished steel products
In addition, Chabrand pointed out that according to data from industry group Canacero, the scenario is positive as Mexico still has a significant steel deficit.
“The supply of flat steel increased, and with it exports also increased, but you have to consider other products,” he said.
The Mexican steel service centers/distributors association or Canacero reported an increase of 8.5% in the production of finished steel products year on year in 2022, which also resulted in an increase of 21.2% in exports. The association also reported a fall of 11.7% in imports and a decrease of 2.8% in apparent steel use.
Green steel: key issue for coming years
Another topic of great importance for Conadiac is the reduction of the industry’s carbon footprint and the arrival of green steel.
“Several mills have been already talking about investments to reduce the carbon footprint, trying to move to cleaner energy,” Chabrand said.
Distributors will have their part of the work in logistics. They will need to renew the vehicle fleet, switching to electric cars. But the biggest challenge will be access to better quality fuels. Vehicle fleet renewal programs will be necessary along with regulations that allow access to clean energy, Chabrand said.
He added that in terms of steel production, the rise of green steel could bring higher production costs in Mexico because raw materials are mostly imported.
“There will be more demand for scrap,” Chabrand said.
Post time: Feb-22-2023