The restart of steel production at the Altos Hornos de México (AHMSA) steel company continues, as the local press in Monclova, the steelmaker's headquarters, reported that it could be this week. In this scenario, a renowned stock market analyst in New York said that with the restart of operations "the bull market for North American steel will end."
The newspaper La Voz, from the city of Monclova, Coahuila, on Friday published the headline "AHMSA will reactivate next week."
With that information, SteelOrbis requested confirmation from the steelmaker. In addition, AHMSA buyers and the stock market analyst were contacted to find out the potential impact on the Mexican industry of the return to production of the steel company with a capacity of 5.5 mt of steel per year. The company produces with blast furnaces and with an electric arc furnace (EAF) of 1.2 million mt.
The local press (from Monclova) also published that a judge forced the state Federal Electricity Commission (CFE) to reconnect electricity to AHMSA, despite a debt, and that they await a legal order for the state oil company Pemex to also supply gas again.
Also recently, the company commented that the American investor Argentem Creek Partners, which already has an agreement signed to buy the controlling share package of AHMSA, already has available, in a trust, the first $50 million of the $200 million that it committed to invest in working capital.
A source who frequently speaks with the main executives of steel companies such as Cleveland-Cliffs, Nucor, Steel Dynamics, Ternium and US Steel, among many others, told SteelOrbis that “the Mexican market is very hot. This attracts many imports" due to the paralysis of AHMSA's production.
The industry source said that in one part of the US steel market they consider that "the future of AHMSA is one of the most important issues in the market."
It is so important that there is a major market research company, based in the United Kingdom, which has a consensus that they estimate that AHMSA will start producing steel by the third quarter of the year, although there are those who think that it could take years and others that it could be shortly.
Ternium's global CEO, Máximo Vedoya, on April 26, in the conference call with analysts said: "as you know, the blast furnace is down, so it will take probably several years to restart a blast furnace."
The industry source indicated that the information that the market has about AHMSA is "it will not be reactivated quickly because the BO stopped abruptly."
With that, SteelOrbis consulted an expert in steel production, who commented that without knowing the status of AHMSA's BF, to reactivate production the company will have to invest $4.0 million. Although without the BF, the fastest method is with the EAF,” commented the expert, who knows the AHMSA operation and currently works in one of the largest steel companies in Latin America.
The EAF produces steel with scrap and depending on the type of steel required by the market, it can use a mixture with pig iron (BF) or HBI (RDI). To start production, AHMSA must buy scrap and needs liquidity because that market operates with cash payments. “It is delivered today and paid for tomorrow at the latest,” said another expert in the acquisition of inputs for steel production.
With the EAF alone, production would be 100,000 mt per month, but there is the question of whether there will be buyers. Mark Millett, Chairman, CEO and Co-Founder at Steel Dynamics told investors in an April 20 conference call “but even when AHMSA comes back, I think we're confident, in all honesty, of maintaining a lot of that business. So it's been very fortuitous for us.”
SteelOrbis contacted four large buyers from northern Mexico. One of them, who bought around 20,000 mt per month from AHMSA, replied: “Yes, of course I will continue buying steel from AHMSA as soon as I start producing again.” Another AHMSA customer responded on WhatsApp: "Yes, I'll buy again."
However, another former client of AHMSA said they would “definitely not buy from AHMSA.” In that client’s case, “in the past, we bought little steel from AHMSA, but a couple of years ago we saw the risk of supply and we diversified our supply chain. Currently, we buy CRC and HRC from Ternium and Tyasa and import products from Japan, Korea, Vietnam and Taiwan.”
The industry source believes AHMSA's return will reduce market prices by at least $100/mt. SteelOrbis asked “what will be the impact with the restart of production” and the answer was: “the short answer will be quite a big impact on prices.”
One of AHMSA’s previous buyers said that prices will drop, but not because of AHMSA. The buyer commented that this month the price of HRC and CRC will drop by around $50/mt and in June the price will drop by $100/mt due to weak demand and because imported steel is arriving in Mexico between $300/mt and $500/mt more cheaper than the national product.
The industry source commented that according to some indicators, Mexico registers the "highest HRC prices in the world."
According to AHMSA, the investor continues to work on the process to meet the requirements of the share package purchase agreement and the company will continue to report to the Mexican Stock Exchange.
The impact of AHMSA is also reflected in the economy of the north of the country, since 17,000 direct jobs depend on the steel company, a figure that increases to 70,000 due to indirect jobs.