Mexico/Canada economic overview - July 24, 2006

Mexico: General: The close outcome of the recent federal election has cast a cloud of uncertainty over Mexico's political landscape. The independent Federal Electoral Institute has until early September to rule on alleged voter fraud. Until then, the country will be somewhat in limbo. Meanwhile, financial markets in Mexico have stayed calm, and the economy remains on a steady growth path for the year. GDP: + 5.5% growth for Q1 2006 compared to Q1 2005. It is estimated that the economy grew by around 4.5% in the first six months of the year and that the expected growth rate for 2006 will be a minimum of 4.0% (3.0% in 2005) Industrial Output: + 5.7% in May compared to the same month last year, reversing the 0.9% decline in April. Manufacturing output (a component of the industrial output) grew 6% in June, year on year, spearheaded by strong gains in automobile and truck production, as well as in the construction, electricity, gas and water sectors. Mining declined 1% (not surprising, in view of the many strikes) Consumer Prices: + 3.2% in June, compared to the same month last year Trade Balance: - $3.8 billion in May for the past 12 months Current Account Balance: - $1.2 billion for Q1 Currency: 10.9 Pesos for US$1 as of July 19 (10.7 Pesos per US$1 a year ago) Steel Production: 1,320K mt in May Special Focus - Steel: The labor situation in the steel–and-mining sector has been difficult in the best of times, but it has been downright abysmal in the last four months. We reported this past April that the Mittal and Sicartsa plants in Lazaro Cardenas had been hit by an illegal strike that centers around a power struggle inside the Mine-and-Steelworkers Union. The Mittal strike was settled promptly; Sicartsa's plant is still on strike, three months down the road. Perhaps it is no surprise that Monterrey's papers speculate about a possible takeover of Sicartsa. In today's steel environment, there would be no shortage of suitors of both domestic and foreign origin. It is not surprising that the latest production numbers by the National Iron and Steel Institute (Canacero) are not the best. Liquid steel production in the first four months of 2006 fell by 5.1% to 5.3 million mt compared to the same time frame 2005. In April alone, liquid steel production was down by 20%. Wire rod and rebars were down 30.3% and 22.4% respectively. These are the two main products of Sicartsa's mill in Lazaro Cardenas. Canada: GDP: + 0.1% in April; gains in the service sector were offset by a drop in the manufacturing sector despite an April rebound in motor vehicle production (+2.9% over same month last year) Consumer Price Index: + 2.5% in June compared to the same month last year (2.8% in May) Unemployment: 6.1% in June; unchanged from the previous month. Since the beginning of the year, employment grew by 1.3% or 216,000 jobs -- more than double the growth of 2005 Industrial Production: + 3.1% in April Producer Prices: + 2.5% in May (- 0.3% a year ago) Retail Sales: + 5.7% in April Trade Balance: + $59.9 billion in the latest 12 months Current Account: + $31.8 in Q1 Currency: CA$1.19 to US$1 as of July 19 (CA$1.22 per US$1 a year ago) Steel Production: 1,305K mt in May