Boston, MA -- (ReleaseWire) -- 01/25/2013 -- BMI's Mexico Metals Report for Q4 2012 examines the competitiveness of Mexican steel and warns that recent electricity price hikes coupled with the appreciation of the peso are undermining the industry's competitiveness both at home and abroad. The report examines the enormous long-term potential of the local steel industry and assesses the investment strategies of producers in a domestic market environment that offers considerable room for growth.
In the first seven months of 2012, Mexican crude steel production fell 1.6% year-on-year (y-o-y) to 10.36mn tonnes (mnt) following a strong performance in 2011 when output grew 8.6% to 18.1mnt. In H112, Mexican steel consumption totaled 12mnt, up 17.3% y-o-y, leading to a 48.3% rise in imports to 5.2mnt. Meanwhile, steel exports declined by 19% y-o-y to 2.5mnt as the US market went into decline. The disappointing performance came despite strong growth in the automotives sector, which saw output grow 13% y-o-y on the back of 15% growth in exports. The decline in Mexican output helped cancel out Brazil's contribution to Latin American steel output growth.
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With flat steel growth generated by the resurgent automotives sector, the main challenge comes in the longs segment. Growth of 4.1% is forecast for the construction sector in 2012, which should support domestic long steel production. In the long-term, the US$400bn investment under the second National Infrastructure Plan (NIP) over 2013-18 should provide a sustained source of income for long steel, although Mexico has a patchy record of implementing infrastructural programmes on time. A further challenge will come from rising electricity prices. Given that approximately 70% of Mexican steel output is derived from electric furnaces, this trend is affecting profitability.
Over the last quarter BMI has revised the following forecasts/views:
- With Mexican consumption and production levels going in opposite directions, BMI has revised up the consumption growth forecast from 5% to 12%, while the crude steel production growth forecast has fallen from -1% to -2%.
- There is much to suggest substantial further peso strength over H212 and going into 2013, which would serve to make steel exports less competitive, and may provide some downside risk to the outlook for the steel industry.
- Looking further ahead to 2013, we expect a strong rebound as exports of manufactured goods pick up. An upward revision in the growth rate forecast for this year coupled with base effects also supports stronger performance. As such, we retain our forecast of 19.5mnt output in 2013, an increase of 9.5% y-o-y.
- Altos Hornos de Mexico (AHMSA)'s Fenix Project aims to increase the steelmaker's production capacity to 5mnt by the end of 2012, but BMI believes that the positive impact will largely be felt in 2013.
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