Mexico Metals Report Q2 2012


Full year results for Mexican steel production came in at 18.1mn tonnes, which marked growth of 8.6% for 2011. This level was slightly above our forecast for growth of 6.5% to 17.8mn tonnes as we had anticipated a slightly more substantial weakening of output towards the end of the year. Steel production was likely buoyed by the strong performance in the automotive sector, which saw vehicle production rise by 12.5% in 2011. Moreover, Canacero, Mexico's iron and steel industry association, reported that several producers have seen productivity gains since 2008 on the back of an organizational and administrative reorganization, which has resulted in some cost savings, and would have contributed to improving output. 

Most recent data shows that Mexican steel production growth reaccelerated in January and February 2012, rising by 4.7% and 6.1% y-o-y respectively, bringing the year to date average to 5.4% for the first two months of the year. Looking throughout the year, we believe that base effects from 2011 will dampen growth rates in the middle of 2012, but then flatter them towards the end. With this in mind, we have upped our forecast for Mexican steel production growth from 3.3% to 4.3% in 2012 to 18.9mn tonnes, although we note upside risks to this figure given both the strong start to the year as well as the positive outlook for the automotive and infrastructure sectors. 

Over the medium term, we expect production growth to be driven by demand factors as well as by an increase in capacity. Indeed, domestic iron and steel industry association Canacero projects investment of MXN11.55bn during 2010-2015, representing a 29% increase over the previous five-year period. Among the development plans is Altos Hornos de México (AHMSA)'s Fénix Project, which aims to increase the steelmaker's production capacity to 5mn tonnes by the end of 2012, reduce fixed costs and improve the company's competitive advantage in products such as plate and structural shapes.
The company expects that the Fénix Project will involve investment of US$827mn in new steel plants and mines. AHMSA recently announced that its No. 6 blast furnace has achieved its designed daily output capacity of 4,000 tonnes since entering production in April 2011. Moreover, according to a recent press release, AHMSA recorded record monthly output in October 2011 at its shared plants with Nacional de Acero. 

We see several risks to our positive outlook for the Mexican steelmaking industry. Apart from regulatory curbs on exporters, we note that cost pressures could still hurt Mexican producers, given that oil prices have continued to rise in recent months, which could translate into higher electricity costs. Indeed, electricity prices were hiked in 2011, and we would not rule out further hikes going forward and given that approximately 70% of Mexican steel output is derived from electric furnaces, this could affect profitability. Finally, 80% of Mexico's exports are destined for the US, and we expect to see weak growth in 2012 in Mexico's northern neighbour. 

Published : May 2012                     No. of Pages : 30                   Price:US$1175
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Table of Content

Executive Summary . 5
SWOT Analysis . 6
Mexico Political SWOT.. 6
Mexico Economic SWOT ... 6
Mexico Business Environment SWOT 7
Global Overview ... 8
Steel Market Overview ... 8
Table: BMI's Steel Forecasts . 8
Table: Steel Products And Inputs - Price Data 11
Commodities Forecast . 11
Gold . 11
Copper . 12
Aluminium 13
Lead . 13
Nickel ... 15
Tin 16
Zinc .. 17
Industry Forecast Scenario ... 18
Table: Steel Production And Consumption ('000 tonnes, unless otherwise stated) .. 22
Macroeconomic Outlook .. 23
Competitive Landscape . 25
Company Profiles ... 27
ArcelorMittal ... 27
Altos Hornos de México SA de CV (AHMSA) .. 28
BMI Methodology ... 29
How We Generate Our Industry Forecasts .. 29
Cross Checks ... 29Table: BMI's Steel Forecasts . 8
Table: Steel Products And Inputs - Price Data . 11
Table: Steel Production And Consumption ('000 tonnes, unless otherwise stated) . 22

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