The Mexican steel market is bracing for a bearish third quarter, as prices are expected to nosedive on lackluster demand and excess supply. Flat and long steel prices have been dropping for several consecutive weeks, and the speed and severity of the falls have concerned market participants from mills to end-users.
With exports to the US limited and the domestic market without signs of recovery, the bets are on how low steel prices could go. The main concerns center on inventories losing value and market players experiencing losses across the chain.
The prices for hot-rolled coil and rebar in Mexico plunged about 20% and 10%, respectively, since mid-April.
The Bank of Mexico (or Banxico) increased its benchmark interest rate by a record 75 basis points to 7.75% last week, saying it would hike rates again and by as much if necessary to tame inflation that has surged to a 21-year high. Inflation in the year through mid-June hit 7.88%, well above the central bank’s target of 3%, plus or minus one percentage point.
Banxico then raised its forecasts for inflation, which it expects to top 8% in the third quarter, before gradually falling back toward the official target.
According to sources at the main steelmakers, the market entered a very complicated stage. Despite having steel prices far from the peak seen in mid-2021, the continuity of high inflation and interest rates have been denting consumers’ and investors’ power.
“The only way out would be selling inventories slowly, diluting the value of the stocked material… But that, if there was a minimal demand,” a source said. “Many are selling at a loss, especially end-users, which puts a brake on business on the tip.”
With scrap costs easing and major mills trying to close first-half balance sheets at good levels, the battle for sales may intensify in the last week of June.
Reducing steel production pace seems ruled out as a short-term option due to the costs involved in the process and fears of losing market share. There is a concern when new plants come fully online, such as Ternium’s and ArcelorMittals’ new rolling mills.
Even though plunging international steel prices and macroeconomic indicators could be cited as another factor weighing on the Mexican market, foreign materials are in no need from making additional pressure as domestic prices drop faster and logistics and delivery times for imports make any opportunity overlooked.
Source: El Financiero