MEXICO CITY Excess
supply and low demand are the two main issues affecting the
profitability of Mexican steel distributors, a key industry
figure told AMM sister publication Steel
The market situation has
generated a "strong price war" among local companies, Raymundo
Díaz Oñate, president of Mexican steel
distributors confederation Conadiac, told Steel
First in an interview.
members and nonmembers of Conadiachave been fighting
(each other) to win sales, so there is a strong price war, and
profit margins are minimal," the executive said.
"Sometimes distributors want
to earn (as low as) 200 Mexican pesos ($16.52) per tonne, and
thats absurd," he said.
Some, for example, have been
trying to sell rebar for 10,200 Mexican pesos ($842.60) per
tonne, which he said is already a low level in that market. "We
have found some offers on the market even below 10,000 Mexican
pesos ($826.28) per tonne," Díaz Oñate
The Mexican distribution
market has been "much cluttered" as a result.
"We are requesting to the
steel plants and all steel distributors a certain order (for
the market) to be profitable," he said.
There are about 50 service
centers in the country, and their average utilization rate has
been at some 60 to 70 percent of their total processing
capacity, according to Díaz Oñate.
In the first quarter this
year, the market was "fatal," with "very low activity" stirring
from a weak construction sector, the executive said.
The automotive and auto
parts industries, on the other hand, have helped to improve
activity in the steel market in the first few months of 2013,
Díaz Oñate said.
"We expect an improvement in
activity in the second half of the year if structural reforms
are implemented in the country, and then maybe by the end of
the year we will see a better situation," he said.
Despite the expected
improvement in demand, the distribution market is set to become
even more pressured as new companies start new units in
Early this year, a top
executive in the sector said that at least 10 new foreign
service centers will be installed in Mexicos central area
over the next few years.
agreed that the high number of players in the market might lead
to a consolidation process in the future.
"It is very likely indeed
that we have to make alliances with other ones," he said. "But
right now we must seek to have the quality required to supply
the automotive and auto parts plants."
As much as $16 billion is
expected to be invested in the automotive sector in Mexico over
the next few years, driving local vehicle output to as much as
4 million units per year, according to the Mexican Ministry of
Moreover, Mexicos auto
parts industry has surpassed the South Korean one and now ranks
as the fifth-largest in the world, according to the national
suppliers association, Industria Nacional de Autopartes
A considerable amount of the
steel consumed by these and other Mexican industries has been
coming from the international market, which has triggered
growing criticism from local steelmakers.
Imports will continue,
though, as the Mexican steel industry does not manufacture
specific steel products, especially some for the automotive
industry, Díaz Oñate said.
"We welcome the (foreign)
steelmakers that are offering steel products to Mexico, but
they have to export with equity, trying to avoid oversupply,
which is what harms us all," he explained.
In order to replace some
imports, such steelmakers as Altos Hornos de México SAB
de CV (Ahmsa) and Ternium México SA de CV have been
developing projects to produce more high-value-added products
in the country.
"Terniums project is
focused to replace imports of products, mainly for the
automotive industry, and thats goodall projects
that could reduce imports are good," he said.
Terniums project consists of a hot-dipped galvanized mill
in Pesquería, Nuevo León state, designed to
produce 400,000 tonnes per year of high-grade galvanized and
galvannealed steel sheets for the automotive industry.
project is also expected to help Mexico to reduce its flat
steel imports, Díaz Oñate said.
Gerdau SA has been also building a greenfield long steel plant
in Mexico, the executive noted. Named Gerdau Corsa, the plant
is expected to come onstream in the second half of 2014, and
its output will mainly replace imports of structural
However, not every expansion
project is necessarily positive for the Mexican industry,
Díaz Oñate warned.
"Does it make sense to
increase capacity?" he said. "In the case of rebar, for
example, there is already a strong oversupply in Mexico, so
plants that just increase their production levels will cause a
major problem of oversupply."
A version of this article
was first published by AMM sister publication Steel