Mexican steel looks to automotive industry to shorten consumption fall due to Covid-19

Mexican steel looks to automotive industry to shorten consumption fall due to Covid-19

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Steel consumption in Mexico, one of the ten largest steel-consuming countries in the world, will decline by at least 12% this year due to the Covid-19 pandemic. Demand will stand at 21.6 million tonnes as long as the industry recovers pre-lockdown production levels during the second semester. Otherwise, the fall will be even steeper, according to Daniel Riojas, Sales Deputy Director at Altos Hornos de Mexico (AHMSA), the country’s main steel producer.

Riojas gave this forecast at MM Steelclub’s 3rd Virtual Conference on Steel, Metals and Mining in Mexico, held on 2 July. At the event, he explained that hopes to revive consumption in the coming months were on the automotive sector, since the other main steel-buying industry, construction, was already weak when the new coronavirus arrived in the country.

“We need to remember that the construction sector has been affected not only by the pandemic, it’s had issues since the second half of 2018”, he said. “Because, in Mexico, we don’t have enough projects”.

Construction fell by 16% in the months from January to April in comparison with the same period last year. In April, activity declined by 33% compared to March’s. The figures were similar for the automotive industry: -12% and -31%, respectively. But, as Riojas pointed out, there is an important difference: reduction in vehicle manufacturing was caused exclusively by the pandemic.

This means that lockdown measures imposed to prevent the spread of Covid-19 in Mexico hit car producers harder than construction companies. For Riojas, there’s a silver lining to this: now that confinement measures are being lifted, the automotive sector could have a better chance to recover.

The Mexican car industry registered historic falls during the first months of confinement. In a country with an average output of 300,000 cars per month, figures dropped to only 3,722 vehicles produced in April and 22,119 in May.

“If the USMCA (United States, Mexico and Canada Agreement) region is going to recover, maybe this sector will have a different reaction during the second half of 2020. If we have the same numbers that we had during the first quarter, we can forecast 2.8 million units of light vehicle production in Mexico”, said Riojas. Despite this being the best case scenario, it would still mean one million units less than in 2019.

If this fast recovery expected for the automotive sector does happen, Mexican crude steel production would still decline in 2020. Riojas estimates this fall to sit at 10%, but only if output goes back to normal levels during the second half of the year.

In May, the capacity utilisation rate was of 51%, with 1.168 million tonnes of crude steel being produced. “If we are going to think in a different way and say that the worst happened during the first half of the year and that we are going to see better numbers for the second half, we can forecast a production of 16.5 million tonnes for the end of the year, 10% less than in 2019”, he said.

“If we think that the government will resume projects like the Maya Train, the Dos Bocas refinery and the airport in Santa Lucia, maybe the recovery during the second half of the year could be better”.

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