Mexican flat steel prices have reached 13-year highs, with both buyers and producers expecting them to remain strong in the second half of the year amid persistent tight supply, despite a slowdown in domestic demand.
Such has been the cases for Mexican hot-rolled coil, which jumped to Peso 28,700/mt ($1,447.55/mt) on April 9, and cold-rolled coil, which reached Peso 31,500/mt ($1,588.78/mt) the same date, marking the highest level registered by S&P Global Platts since 2008. Prices since then have remained stable, waiting for market direction.The peak has followed a rally that began after the restrictions related to the coronavirus pandemic affecting steel production and demand, causing prices to drop. Domestic HRC prices have surged 137%, while CRC 120% from August when they reached their lowest point at Peso 12,100/mt ($530.27/mt) and Peso 14,300/mt ($626.68/mt), respectively.
"I do not see how price trends can change in a short and medium terms since supply is still not enough to satisfy demand," said Antonio Chabrand, commercial director at Ladesa in a recent webinar held by CONADIAC, Mexican steel service centers/distributors association.
It´s true that the peak of August 2008 resulted in a fall that lasted a year, which is why doubts have raised about the potential of new peaks. However, according to Chabrand, in comparison with that year, the current inventories in the distribution sector are at minimum levels, with shortages along the whole supply chain, which is already a strong reason to avoid a dire decline.
However, "the installed capacity of plants remains between 78% and 79%, which represents at least 10 percentage points below compared to 2008," he said.
In addition to the tight domestic supply, Chabrand added that imports are also limited, particularly from Europe, which is historically an origin region of imports to Mexico.
New capacities coming on stream by Ternium and ArcelorMittal are unlikely to offset the decline in supply provoked by reductions in Ahmsa.
"I see a stable scenario until December," said Luis Gutiérrez, vice president of sales at Ahmsa, explaining that at least for the next eight months it's difficult that the new capacities reach the volume the company stopped producing.
According to Gutiérrez, Ahmsa is expected to produce 150,000 mt of steel per month for the rest of the year. However, since it is sold out, the supply will remain limited, which should help to keep prices calm, but firm.
Nevertheless, there is another strong fundament to consider that prices may remain strong: raw materials. Costs of raw material have also reached historical maximums.
Metallic scrap supply in Mexico have been supported by industrial sector recovery; however, the country became the top of US export ferrous scrap destination in February for the sixth time ever, which ended up raising costs.
US shipped 294,784 mt of ferrous scrap to Mexico. Shredded scrap represented 133,565 mt while HMS totaled 92,301 mt.
Rising industrial, energy demand; commercial sector on holdDemand in the distribution sector is gloomy, but the industrial sector is very dynamic due to the rebound in demand for electronics in the US, home appliances and automotive sector.
According to sources, this scenario gives room to the possibility of seeing an increase in exports to the neighbor country, since they also face a shortage of steel, which make easier to find buyers. Moreover, the recent infrastructure´s plan unveiled by President Joe Biden is expected to boost steel demand also in Mexico.
Demand in the energy sectors has also been reported strong.
"Demand seen bullish for both 2021 and 2022," said Jaime Luján, sales director at ArcelorMittal.
According to data from CANACERO, the chamber of Mexico's iron and steel industry, 6.6 million mt of flat steel were produced in Mexico last year. "Not counting around 600,000 mt of liquid steel transformed into slab by our sister plant in the US," Luján said.
In Mexico, the apparent steel consumption is 21.7 million mt, where flat steel represents 13.4 million mt.
The recovery of steel demand has been constant; therefore, a 7.5% increase in the apparent Mexican steel consumption is expected for this year, while an increase of 5.5% is expected in 2022 to reach 2019 levels, he added.
