US President-elect Donald Trump's rhetoric about bilateral trade and the North American Free Trade Agreement could severely impact the Mexican aluminum industry, but his campaign promises are not likely to be enforced, several sources said during the 7th Mexican die casting congress in Leon, Mexico.
Mexico has several secondary aluminum smelters and die casters which feed the local automotive industry, the seventh-largest in the world. Around 70% of car production is exported to the US -- a scenario that could be dramatically changed based on Trump's proposals during the election.
"Beyond politics, the winner of the US election is a businessman, he will not oppose to the good trade which benefits American companies," Mauricio Galicia, procurement and supply chain coordinator from the Guanajuato state automotive cluster, said in a presentation. "Mexico is not the US rival."
On the sidelines, several market participants agreed that closing the doors for US investment in Mexico wouldn't be beneficial for either country.
"I don't believe Trump can decide all alone about NAFTA, and even the Republican Party is against ending it," a smelter source said, who said they are putting the brakes on possible investment decisions until the outlook gets more clear.
"If he really ends NAFTA, our automotive industry will collapse, and smelters too -- but this would strongly reduce the international competitiveness of the American carmakers," he said.
Many Mexican smelters also depend on US aluminum scrap to produce since the domestic supply is insufficient.
"Who knows what can happen, but if the trade with the US is really over, we would have to buy domestic scrap at those very high prices and many smelters would have to close," a second smelter source said, recalling that Mexican scrap prices are usually higher than those in the US.
After Trump's election, some Mexican scrap prices boomed Wednesday.
"This is not likely to happen because the Americans maybe will not want to buy, but they will not reject to sell," the first smelter source said.
"Even if that happens, the market auto-regulates itself -- impacts on supply would affect costs, but also prices lately," said a third smelter source who also does not believe Trump's victory necessarily means the end of NAFTA.
"The investments which were done here [in the automotive sector] target the long term, this will not just vanish, so local smelters don't need to be so scared about investing in expansions now," he said. "However, we will all need to be initially very cautious now."
