INTERVIEW: Mexican steel service centers, distributors expect challenging 2022

Mexican steel service centers and distributors are concerned about experiencing another year of “plague of uncertainty,” with industrial and commercial operations notably lower compared with the previous year, Conadiac President Roberto Gutiérrez told S&P Global Platts.

“We are concerned about our economy,” Gutiérrez said in an interview with Platts.

Sales volumes in the distribution network to end-users declined around 30%-40% annually at the beginning of 2022. This has strengthened the wait-and-see approach across the sector, with steel buyers now looking to keep inventories in a balanced level relative to demand, according to Conadiac, the association representing Mexican steel service centers and distributors.

“Nobody is thinking in having large inventories because there is greater availability of product in both long and flat steel markets,” said Conadiac Vice President Roberto Pérez. He said turnovers of two to three months for flats products and less than a month for longs would be an ideal scenario. However, “we have not been able to destock as much as we would like and we continue buying only specific needs,” Pérez added.

Low inventory levels became a new reality for buyers after prices for long and flat steel began a downhill in August 2021.

Besides the three main ongoing construction works in Mexico — the Felipe Ángeles International Airport, the Dos Bocas Refinery and the Tren Maya line — there are no other major projects in sight to spur the national economy and steel demand growth.

Gutiérrez added that in the last quarter of 2021, the market showed a slight increase in steel purchases as some projects resumed activities. However, he stressed that such increases only reflected the activity of covering holes in inventories, which did not mean a real improvement in demand.

Still, despite the lack of demand, “the ongoing downward trend in steel prices in Mexico should slow the pace,” Pérez said, noting that the spread between rebar and HRC has returned to historical levels.

The monthly spread between Mexican rebar and hot-rolled coil prices ranged Peso 1,610-2,735/mt in 2019. After the spread peaked Peso 16,463/mt in September 2021, it was now returning to levels below Peso 3,000/mt in February, Platts data showed.

Flat steel to face new price dynamics

The Mexican steel market is expected to see a significant surplus in 2022 for hot-rolled coils, following the new capacities coming on stream for the domestic market. This might mean that pressure on prices would remain throughout the year, although in a moderate way.

Conadiac’s executives did not see Mexican HRC prices going below $1,000/mt, “at least in the first quarter.”

In the past three months, the price fall in finished steels and fabricated steel products has been faster than expected in a well-supplied market with domestic offers combined with imports.

According to Pérez, rectangular hollow sections was the most affected product, where offers have been seen below HRC prices. “It is a very pulverized market that although it seeks exports, it has faced limitations, not everybody can ship all they want,” he said.

Nevertheless, the scenario is opposite for cold-rolled coils with distributors seeking to import more material in the face of still high prices in the domestic market, where the spread between both products has already exceeded Peso 3,000/mt.

However, both HRC and CRC could see imports in general reducing pace, as Mexican ports remain saturated and international prices and associated risks turned the activity less attractive.

Mexican HRC prices have fallen 40% since the peak of Peso 38,000/mt in August 2021 while CRC prices have fallen 35% since the peak of Peso 41,000/mt in the same month.

“It is not only the new capacity of ArcelorMittal and Ternium, but also the new capacity of Steel Dynamics in Corpus Christi, who is considering 40% of its production for the Mexican market,” said Pérez.

Ternium announced the beginning of operations in its new hot-rolling mill in Pesquería in the middle of 2021 with a capacity of 4.4 million mt/year, while ArcelorMittal started operations of its new rolling mill in 2022 with a capacity of 2.5 million mt/year.

Exports key factor for rebar

Although limited demand has driven the pressure on steel prices, efforts by rebar makers to export to the US have detained further falls. Moreover, “scrap costs are rising,” Gutiérrez said.

Mexican rebar prices have risen 7% since December 2021 when mills started to target higher prices.

“Nowadays it is a relief that not all the rebar is staying in Mexico, otherwise, we would be struggling with ample supply,” said Pérez.

In addition, Gutiérrez said self-built construction is likely to remain a strong support for demand in the rebar market on the back of remittances from the US that might spur spending for the second quarter while private construction works pick up slowly.

Speaking on the distribution side of the business, Conadiac sees a period of consolidation and maturity across the chain. It said several companies left the business since the breakout of the pandemic, while others emerged as big players and intensified the competition.

Conadiac is integrated by 170 associate members with offices in Monterrey, Guadalajara, Puebla, Mexico City and Tijuana.

— Claudia Cardenas