Mexico Steel Market Update: March 14, 2024
The Mexican steel market continues to be a dynamic and complex landscape, with several key developments shaping the industry’s current state and future prospects. This update dives into recent news regarding, proposed trade policy changes, U.S. export trends, demand price trends, production disruptions, and company updates.
US Senators Propose Reinstating Tariffs on Mexican Steel
“Stop Mexico’s Steel Surge Act“: A bipartisan group of US Senators has introduced a bill aiming to reimpose 25% Section 232 tariffs on steel imports from Mexico. These tariffs were eliminated in 2019 with the expectation of increased transparency in steel and aluminum trade between the US and Mexico.
The surge in imported Mexican steel conduit, a type of steel pipe used for various construction projects, has been particularly impactful. This surge led to the closure of Zekelman Industries’ Long Beach mill and the loss of 150 jobs. Mexican steel producers have been aggressively pricing their products below prevailing US market prices, leading to a significant increase in US imports of Mexican conduit. Recent data indicates that Mexican conduit imports in the last two months of 2023 were running at approximately 760% above historic levels from 2015-2017
Market Concerns: This proposal has raised concerns among market watchers in Mexico, including Gabriela Siller, Chief Economist of Grupo Financiero Base. The potential re-emergence of trade barriers could disrupt the flow of steel between the two countries.
Mexico’s Response Options: Unlike previous tariff situations, Mexico may be limited to retaliatory measures solely on steel products if these tariffs are implemented.
US Exports of Galvanized Steel Sheet to Mexico Surge
Significant Increase: According to US Department of Commerce data, US exports of hot-dipped galvanized (HDG) sheet and strip to Mexico skyrocketed in January 2024. Exports reached 68,831 mt, a 43.6% increase compared to December 2023 and a 25.5% increase year-over-year.
Mexico as Top Destination: Mexico was the primary recipient of US HDG exports in January, highlighting the close trade ties between the two countries.
Bearish Sentiment Grips Mexican Steel Market in March
The latest S&P Global Commodity Insights steel sentiment survey paints a picture of a Mexican steel market grappling with declining prices and sluggish demand. Here’s a breakdown of the key findings:
Price Expectations Plummet: Across all participant categories, the survey reveals a decidedly bearish outlook on pricing. The index for steel price development dropped to a mere 33.3, significantly below the 50 mark indicating stability. This suggests widespread anticipation of price decreases in the near future.
Service Centers vs. Distributors: Interestingly, service centers, which typically act as intermediaries between producers and consumers, expect a more moderate price decline compared to distributors. This could indicate that producers might be willing to absorb some of the price drops to maintain business with service centers.
Long Steel Feels the Squeeze: The long steel sector, used in construction and infrastructure projects, appears to be bearing the brunt of the downturn. The survey shows a lower price stability index for long steel products compared to flat steel products.
Demand Remains a Concern: Low demand is a recurring theme in the survey responses. Many participants believe this will continue to exert downward pressure on prices. While some hope for a price stabilization by the end of March, others remain cautious.
Inventory Levels Vary: The survey also sheds light on current inventory levels. While some report holding a significant stock of flat steel products (over 75 days), inventories for long steel products appear to be lower, with most respondents having less than 45 days of stock. This discrepancy could be a reflection of the differential demand between the two sectors.
Raw Material Costs Expected to Decline: Adding to the bearish sentiment, the survey reveals expectations of a decrease in raw material prices as well, with an index of 35.1 for change in raw material price.
ArcelorMittal Announces Production Impact Due to Furnace Accident
Accident and Impact: ArcelorMittal, the world’s second-largest steelmaker, reported a fire incident at its EAF (electric arc furnace) in its Michoacán, Mexico plant on Sunday morning. This incident will temporarily affect production capacity up to 25% in the second quarter.
Mitigation Strategies: ArcelorMittal is currently assessing the damage and implementing mitigation strategies to minimize supply disruptions to their customers.
Mexico’s Importance to ArcelorMittal: Notably, Mexico is ArcelorMittal’s eighth-largest revenue generator, contributing 4.8% of their total revenue in 2023. This incident highlights the potential impact disruptions in a single location can have on a global company’s production.
Altos Hornos de México (AHMSA) Secures Financing for Revival
Insolvency and Restructuring: AHMSA, a major Mexican steel producer, has been facing insolvency challenges. However, they recently announced securing binding agreements with a foreign investor for a loan to restart steel production in the coming months.
Financing Details: The details of the financing agreement remain confidential, but it involves a senior secured super-priority multi-tranche debtor-in-possession (DIP) term loan facility. This type of financing prioritizes the new debt over existing claims during AHMSA’s bankruptcy proceedings.
Challenges Remain: The financing is contingent on AHMSA successfully navigating recent tax credit challenges imposed by the Mexican government.
Nippon Steel Invests in Mexican Electrical Steel Processing Center
Meeting EV Demand: Nippon Steel, a leading global steel producer, announced a $66 million investment to build an electrical steel sheet processing center in Guanajuato, Mexico. This facility is strategically located to cater to the growing demand for electric vehicle production in North America.
Production Capacity and Location: The center will have a production capacity of 120,000 mt per year and is situated near major automotive manufacturing plants in the region.
Long-Term Vision: This investment reflects Nippon Steel’s commitment to the Mexican market and their anticipation of large-scale expansion in the electric vehicle sector.
Conclusion
The Mexican steel market presents a complex picture. While production disruptions and potential trade barriers pose challenges, significant developments like company revivals and strategic investments in electric vehicle-related steel production indicate a market in transition. The coming months will be crucial in observing how these developments play out and their lasting impact on the Mexican steel industry. For the latest steel market updates be sure to follow Steel Industry News
