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Quarterly Report on Metals Market in Mexico

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Nov 10 2009

Research and Markets (http://www.researchandmarkets.com/research/8e27f3/mexico_metals_repo) has announced the addition of the "Mexico Metals Report Q4 2009" report to their offering.

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.

Mexican metals producers are just beginning a slow road to recovery, but the country's strategic position and competitive advantages should ensure that it continues to attract investment in expansion of steel mill capacities, according to BMI's latest Mexico Metals Report.

In the first eight months of 2009, Mexican crude steel output fell 32.7% y-o-y to 8.59mn tonnes. The fall in output came after a rapid slowdown from September 2008, reaching a monthly output low point of 810,000 tonnes in January and February 2009. In June-August, monthly output had recovered to around 1.2mn tonnes; August output was down 23% y-o-y.

The upturn in production was in large part due to the completion of destocking rather than a growth in demand from steel-using industries. However, with overall Mexican industrial output stabilising by Q309, BMI believes that the steel industry has passed its low-point but will not see firm growth until H210 when the US, Mexico's largest steel export market, is expected to revive. However, domestic consumption will remain lacklustre until the domestic economy returns to strong rates of growth from 2011. GDP will grow just 0.8% in 2010, with industrial output shrinking 2.3%.

The economic crisis has put Mexico's hopes of securing a higher rate of growth over the medium term into jeopardy, and there are lingering uncertainties over whether it will meet the target of 32mn tpa by 2020. Mexican production capacity is expanding, yet domestic demand in Mexico for carbon and stainless steel sheet is falling. BMI estimates that domestic apparent finished steel consumption fell 5.1% in 2008 to around 17mn tonnes. We forecast a further 20% drop to around 13.6mn tonnes in 2009 as key consuming industries have ground to a halt. The decline in steel demand is related to the decline in Mexico's production of automotive and white goods as well as the contraction in mining, manufacturing and construction. Service centres have responded to the collapse in end-customer demand by cutting inventories and sharply reducing orders from mills.

The upshot of recession will be a 23% fall in hot-rolled steel output to just 11.64mn tonnes. Rebar is set to fall 28% to 2.56mn tonnes and tubes and tube fittings will fall by 23% to just under 921,000 tonnes. However, BMI anticipates a strong recovery in output from H210, in line with a recovery in demand and rapid expansion of capacity. By 2013, crude should exceed 25mn tonnes, an increase of around 44% over 2008 levels. A large amount of Mexican capacity is due to come onstream in coming years, but BMI does not believe the domestic market will recover fast enough to absorb the extra output. Mexican producers are therefore looking northwards for markets. There is uncertainty over prospects in end-use markets amid tight lending conditions, which are forcing a reassessment of major construction projects and manufacturing production. Yet, the market situation in the US and Canada is deteriorating and producers will struggle to find buyers over the short term. As a result, steel prices are dropping just as rapidly in Mexico as in the US, according to reports. On the upside, it is widely expected that the Mexican industry will face less inflation pressure and better prices for raw materials than seen in 2008. While Mexico still has plenty of domestic growth potential (BMI forecasts 2013 apparent finished steel consumption of 19.09mn tonnes, an increase of 12.8% over 2008), the recovery will be strongly led by exports as the country makes the most out of a post-recession scenario where significant amounts of US steelmaking capacity are permanently taken offline.

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