Fabricio Menegoni
Executive Director
Gerdau Corsa
View from the Top

Reinforcing the Domestic Steel Market

Tue, 11/01/2016 - 14:08

Q: How does Gerdau Corsa address the industry’s gaps and trends?

A: The Mexican infrastructure sector has experienced dramatic shifts over the years. Public investment is falling while private investment is rising. Vertical construction is similarly taking off and as a result, construction companies need to have better technology and more agility. On average, construction grows at a 3 percent rate per year in Mexico and demand for steel beams is rising at an annual rate of 8 percent. One challenge is that Mexico imports 70 percent of its steel beams, which take a minimum of three months to arrive. The whole chain from manufacturing to distribution and construction is delayed, hiking project costs. National steel production would smooth these rough patches and shorten the production cycle significantly. For that reason, we have invested US$600 million to construct a mill in Ciudad Sahagun, Hidalgo. The mill has an installed capacity of 1 million t/y of steel and 700,000 tons of structural steel shapes that give us a strong grip on the market. We also have technology that shortens average production cycles and our clients can order over 110 sizes and specialized cuts to satisfy special requirements. The mill’s beam production varies from 6-24in to cover national needs and our products and technical services can improve efficiency and infrastructure development. Ultimately we want to turn Mexico into an exporter instead of an importer.

Q: How did the plan to build the mill unfold?

A: Before deciding to create the plant in Ciudad Sahagun, the company thoroughly analyzed the area’s social context and potential because developing communities creates stronger relationships with supply chains. The company found the city already had been relatively developed, having hosted Mexico’s first industrial park, but several factors and conditions caused it to deindustrialize. Still, important infrastructure was already in place, such as electric transmission lines, gas and water networks, and the region is well-connected to freeways and railways. We intend to kick-start the community and the company already has implemented 17 social volunteer programs that have impacted more than 1,000 people. In 2012, our initial plans projected a two-year window for construction plus two more years for product development. The company pushed itself to finish construction on budget and on time and to develop the products in less than one year. The idea was to create a portfolio of 86 beam sizes but we ended up developing 110 products in only eight months.

Q: What impact has steel dumping and overcapacity had on the Mexican market?

A: Any type of change will always create an impact. Without a doubt, the supercycle of commodities has buffeted the steel industry, which is affected by market downturns in China, Brazil and Russia. China controls 50 percent of worldwide steel production with a total of 1.4 billion t/y. Two years ago, the country was growing on average 12-14 percent annually and this attracted plenty of investment. Unfortunately, the economy’s deceleration caused oversupply in the market and now many companies are scrambling to figure out how to work with that. Businesses in China also partner with the government to guarantee a functional society and employment at the cost of fair play. Steel is not an easy market as it competes with many countries, particularly China’s mass production. Gerdau Corsa decided to invest in Mexico because of its growth opportunities and competitive strength.

Q: What role does the company want to play in the local infrastructure industry?

A: The company strives to be our clients’ first choice by proving our professionalism. We want to help players evolve and to promote the industry. Another objective is to turn the country into an export platform in a fair market. Our ability to compete does not depend on subsidies but high-quality material and service. We also develop the communities where we work and foster local talent. We hope to grow into other segments in light and heavy infrastructure such as bridges, where steel can be an alternative. Our three main challenges revolve around balancing our exports with quality, creating a relationship with the domestic market and being a leader in the steel industry.