Steel Sector’s GDP Contracts 44.8% in 3Q24

Mexico’s steel industry GDP recorded a decline of 44.8% in 3Q24, marking the largest drop in the history of the country. The fall was partly due to a blockade of ArcelorMittal facilities by the Mining Union led by Napoleón Gómez Urrutia.

The contraction resulted in the industry’s GDP, reaching its lowest historical value, continuing seven quarters of negative growth. This downturn is now the second-longest recession in Mexico’s steel industry, notes ReportAcero. The most prolonged recession occurred from 4Q18 to 2Q20, during the transition between the presidencies of Enrique Peña Nieto and Andrés Manuel López Obrador, lasting eight consecutive quarters.

The current recession is also the most severe in terms of monetary value. According to INEGI, the industry’s GDP has accumulated MX$334 billion (US$16.4 billion) over the past seven quarters, with an average of MX$47.68 billion per quarter. In comparison, the previous recession from 2018 to 2020 saw an accumulated GDP of MX$430 billion, averaging MX$53.73 billion per quarter.

ReportAcero noted both recessions occurred during López Obrador’s administration. The five best quarters in the steel industry’s history were during Felipe Calderón’s presidency, including the top two in 1Q08 and 2Q08. 

The current downturn was largely influenced by a blockade lasting more than two months at ArcelorMittal’s facilities, followed by a three-month delay in restarting operations. On May 24, 2024, workers from Section 271 of the SNTMMSRM blocked ArcelorMittal's steel plant over dissatisfaction with profit-sharing (PTU) payments. ArcelorMittal stated it followed legal provisions regarding payments and offered a 10% PTU, above the legal limit. Víctor Cairo, CEO, ArcelorMittal urged workers to reconsider their demand for a 32% PTU, which he deemed illegal. The Federal Labor Court and the Fifth District Judge in Mexico City ruled the strike premature and procedurally invalid.

The agreement reached between the steel company and the workers mandates that ArcelorMittal increase wages by 8%, provide a package consisting of MX$17,000 (US$836) in grocery vouchers, full compensation for lost wages, and for an external audit to be carried around the 2022 and 2023 fiscal years to ensure the accuracy of PTU payments.

Additional Challenges for the Sector 

In an interview with MBN, Arturo Tronco, CEO, Peña Colorada, highlighted the unique challenges of mining iron ore in Mexico. He explained that the large production volumes create significant logistical difficulties, particularly with transportation. Additionally, Tronco pointed out that profit margins in iron ore mining are narrower compared to precious metals, as the primary consumers are industrial clients rather than high-value end markets.

Similarly, the steel industry faces risks from tariffs in the North American market. US president-elect Donald Trump announced plans to impose a 25% tariff on all imports from Canada and Mexico. Although Mexico has a steel deficit with the United States, relying on imports to meet domestic demand, over 77.5% of Mexican steel exports go to the United States. Such a tariff could reduce the competitiveness of Mexican steel products in the US market.