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Auto-Parts Bonds Drop Due to Microchip Shortage

By Alfonso Núñez | Wed, 11/03/2021 - 16:48

The global shortage of microchips has hit Mexico harder than most auto-manufacturing countries, as shown by most recent auto-parts bonds returns.

 

The global automotive parts manufacturing companies headquartered in Nuevo Leon Nemak SAB and Metalsa SA are two of the manufacturers most affected by the ongoing microchip shortage. Both companies saw their bonds post the worst returns among market peers in the last six weeks.

 

The auto-parts manufacturers seem to be suffering because their market is centered in North America, where auto-manufacturers’ productions have been hit the hardest and production plants have been halted for multiple days throughout recent months. These halts occurred after microchip producers were unable to meet an earlier-than-expected demand from the automotive industry after a decrease in COVID-19 cases led to a global spike in mobility and transportation.

 

Nemak’s 2031 bonds saw a 5 percent loss from 7.4 cents to 93.3 cents and saw a volume drop of 23 percent directly related to the microchip shortage. Metalsa’s 10-year notes dropped from 4.8 cents to 93.9 cents for a 2.2 percent loss. Both manufacturers began to see a decrease in bonds during mid-to-late-September, when the impacts of the microchip shortage began to take a toll on the industry. The shortage does not seem like it will be resolved anytime soon as Ford Motor Co. is preparing to operate under the current crisis for more than a year, not expecting it to end until 2023.

 

Mexican production and sales figures within the automotive industry have seen their worst numbers in the last decade. As the auto-part industry is one of Mexico’s biggest economic drivers, the decrease in demand is estimated to drop an entire growth percentage point for GDP, according to the Mexican central bank. Over the last year, the nation’s operating income decreased by 74 percent to MX$569 million (US$27.7 million). September 2021 saw a 7 percent year-over-year fall in operating income and a 24.2 percent contraction in exports.

 

As the export of vehicles and auto-parts form one quarter of national exports, Mexico’s national economy will continue to see the long-term impacts of the microchip shortage. One of the factors behind it being the spread of COVID-19 variants to Southeast Asian countries where a large portion of these semiconductors are made, resulting in a shutdown that is expected to last for six to eight months. Other countries, such as the US, are preparing to step in to meet the need for semiconductors worldwide. But as manufacturing chips takes more than three months and opening semiconductor factories takes about two years, Mexican manufacturers should prepare to see further drops in bonds for months to come.

Photo by:   Unsplash, Michael Longmire
Alfonso Núñez Alfonso Núñez Journalist & Industry Analyst