BMI View: Expansion in the automotive, manufacturing, construction, and oil and gas sectors, all of which rely on steel and other refined metals for input s , will encourage steady production and consumption growth in Mexico's metal sector to 2018. Domestic steel producers will contend with cheaper foreign imports and US duties on Mexican exports , yet investment into and output from the sector is unlikely to face significant downside risks.
Solid macroeconomic fundamentals in Mexico over the next five years will underpin production and consumption growth of Mexican refined metals production, particularly steel. While weaker-than-expected real private consumption growth throughout most of H214 has led us to downgrade economic growth in 2015 to 3.5% from 3.7%, continued recovery in the automotive, construction, and infrastructure sectors will support the steel industry. Moreover, we forecast average annual real GDP growth of 3.8% in 2016-2018. These factors should ensure Mexico remains the second-largest producer and consumer of steel in Latin America, behind Brazil.
|Increasing Investment To Support Manufacturing Sector Expansion|
|Mexico - FDI Into The Manufacturing Sector|
Mexico's auto sector in particular will continue to attract investment and see production growth given its exposure to the US, the world's largest autos market, and Latin America, which will see growing demand for autos. Reforms to the country's energy sector lead us to forecast an uptick in oil and gas infrastructure investment and therefore increased consumption of steel used in pipelines and other equipment. We recognize the potential is large, and will thus monitor investment into the country's oil and gas industry, as well as a concurrent uptick in production and consumption trends, over the coming quarters.
|Auto Production Gaining Speed|
|Mexico - Vehicle Production & Growth|
Steel To Dominate Metals Sector
Steelmaking will dominate Mexico's refined metal industry, with both domestic and foreign producers growing their presence in the country. We expect domestic producer Altos Hornos and Luxembourg-headquartered ArcelorMittal to remain two of the country's top producers. While Mexican steelmakers have invested in iron ore production, they remain less reliant on iron ore revenue compared with Brazilian steelmakers. Given our forecasts for iron ore prices to average lower in 2015 at USD75/tonne, Mexican steelmakers should thus be less exposed to falling prices and declining mine asset values. Asian, European and Brazilian producers will also continue investments into the country.
We believe that government protectionist measures aimed at limiting illegal steel imports should help to boost domestic production. Both Russia and China have been the target of anti-dumping investigations in recent quarters, and recent regulatory action will put in place stricter oversight on imports, mandating importers to provide greater detail regarding the origin and value of a particular product. Mexican steel exports will come under pressure though after the US Department of Commerce finalized new, higher duties on Mexican reinforcement bar imports in September 2014. Still, we do not expect US tariffs to pose a significant risk to the sector's continued development and growth