Steel: Investment King in Mexico

On Monday, Graciela Márquez, Minister of Economy, announced during the president’s morning conference that Mexico will seek to attract investment and business from the steel sector to capitalize on the new USMCA and "show companies the opportunities that are opening up with this increase in regional content requirements. According to a note from Expansión, the Mexican government has spoken with foreign steelmakers, such as POSCO from South Korea, Nippon Steel Corp and Mitsubishi Corp of Japan and Ternium regarding investment possibilities in Mexico to produce steel for the automotive sector.

According to CANACERO, Mexico is the 15th-largest producer of steel worldwide and in 2019 generated a production of 18.4 million tons of steel. It should be noted that Coahuila is positioned as the national leader in the production of liquid steel with more than 5.5 million tons, followed by Michoacan (4 million tons), Nuevo Leon (3 million tons), Veracruz and Guanajuato (both with 2 million tons). Plus, it is estimated that the sector generates more than 672,000 direct and indirect jobs.

It is important to acknowledge that before this moment, investments in the steel sector were already strong in the country. In April 2019, steelmaker ArcelorMittal allocated US$1 billion to expand its productive capacity in Mexico, including a new rolling, mining and asset modernization line, according to a note from El Financiero. This investment led to an FDI historical level in the steel industry in Mexico, according to data from the Ministry of the Economy.

In addition to investment attractiveness, the steel industry represents 2 percent of the country’s GDP, 6.9 percent of its industrial GDP and 12.9 percent of the country's manufacturing GDP, according to CANACERO figures. Bardahl Industry had projected that by 2020, steel production in Mexico would rebound and its success would be driven by USMCA. However, COVID-19’s arrival strongly impacted the industry and left an unfavorable outlook despite USMCA. 

According to Francisco Leal, Director General of Alacero, "the coronavirus pandemic could not have fallen at a worse time for the steel industry in Latin America because the sectors that consume the most steel in the region have poor results, particularly in Mexico," he explained for Expansión. According to Leal, the main economies of the region, with the exception of Mexico, showed some recovery or stability. In addition, Leal explained the outlook is worrying for the automotive sector in Latin America, since only Brazil and Colombia showed growth in 2019. In the machinery and equipment sector, Brazil, Mexico, Chile and Argentina saw significant falls.

Not everything is negative for the steel industry, however. According to a comment from Alicia Masse, Principal Advisor at GlassRatner Capital Group, during the MBN webinar, Leadership Tools to Successfully Navigate Uncertain Times, “the automotive industry learned a lot from the crisis of 2008-2009, so we expect a recovery in the sector.” This is good news for the steel industry in Mexico. Masse believes there is a substantial difference between the 2009 and 2020 crises that will make recovery easier today.