Mexican mills are looking forward to automotive, industrial, and construction industries resuming their business activities so that they can produce finished steel products for exports, which, in turn, will help mills to improve operations and sales.
However, a squeeze on supply due to the pandemic has made scrap prices unstable over the past five weeks, market participants told Davis Index. In fact, the shortage of scrap has caused mills to reduce their consumption—Deacero has halved its consumption of scrap, Tamsa has reduced it by 70pc, and Ternium Puebla has stopped consuming scrap altogether.
The lower consumption has also prompted steel plants in the country to revive old practices, including paying more than the market rate to get a hold of some material. A commercial manager at a recycling company in Bajío told Davis Index that steel plants are doing everything they can to purchase scrap and mills are paying as much as MXN600 ($26.1) more per scrap lot to get the material.
Market participants however believe scrap prices could rebound once economic, industrial, and automotive activities have resumed fully by Q3 2020. A commercial manager at one of the largest recyclers in New Mexico, told Davis Index that scrap prices could increase as early as June after the economy reactivates.
According to these traders, scrap prices could increase by 25pc in Q3 2020 compared to current values, before adjusting down to be more in line with prices at present in Q4 2020, a market participant told Davis Index adding that for Q1 2021 the recycler does not foresee price increases.
Moreover, after industries resume business, scrap demand could increase from some mills in Southern US, which will require top quality scrap from Mexico, the trader said.
The trader added that despite the Mexican peso suffering depreciation against the US dollar, Mexican mills continue purchasing scrap from the US as they sell their steel products in dollars.
Mexico’s automotive, mining and construction industries have permission to restart production before June 1, provided they comply with health and safety protocols to protect employees from COVID-19.
On March 24, eight carmakers suspended operations at their plants in Mexico just days before the Ministry of Health issued a decree requiring non-essential businesses, including mining and construction to temporarily suspend activities until April 30, 2020, which was then extended to June 1.
The extended shutdowns mean that Mexico’s crude steel production could fall by 10-15pc this year to 16mn mt, compared to the prior year, while Mexico’s car sales dropped by 64.5pc to 34,903 units in April on lower demand due to these suspensions. Construction activity also fell by 7pc in March this year, compared the same month the prior year, according to the latest data released by the National Statistics Agency (Inegi).
The manufacturing industry fell by 6.4pc in March compared the same month the prior year, while the mining industry saw an increase of 1.5pc over the same period, Inegi said.