Mexican wire rod market prices seemingly stable, though demand remains weak

Monday, 20 April 2009 09:24:24 (GMT+3)   |  
       

Despite the continuing global financial crisis, domestic Mexican wire rod prices have not undergone as drastic a change as have steel prices in most other markets.

Mexican wire rod prices did fall somewhat in the latter half of last year, following the onset of the severe global downturn; nevertheless, the devaluation of the peso against the dollar in recent months has offset most of the downward price pressure from the weakened demand, resulting in overall price stability. The peso's devaluation also contributed to a rise in raw material prices, such as scrap and coke, which in turn, drove wire rod offers up.

Spot offers for mesh-quality wire rod in Mexico currently range from approximately 7,500 to 8,000 pesos/mt ($575 /mt to $613 /mt) delivered. The general pricing trend for Mexican domestic wire rod in recent weeks has been neutral. 

Mexico's domestic prices for wire rods are higher than those of the neighboring United States primarily because wire rod imports are very scarce in Mexico as the government imposes high import taxes. Customers only look to imports when domestic prices soar too high, which is not a common occurrence. The industry is highly controlled, mostly because of the pressure steel manufacturers put on the government to restrict the entrance of foreign products.

Mexican mills have not exported much wire rod to the US since several years ago when they were charged with antidumping orders. Only Sicartsa (ArcelorMittal) defended itself against these charges and was able to maintain low margins for exporting to the US. The company only has to pay export taxes of 1.26 percent, while Ternium Hylsa must pay 17.94 percent and all other producers would have to pay 20.11 percent in antidumping duties in order to sell to the US. As a result, the amount of steel Mexico exports to the US is minimal.

As for the return of Mexico's domestic demand for long products, the outlook for the near future is not looking too bright. The Mexican Bureau of the Construction Industry published at the beginning of the month a study which shows that the expected GDP of the construction industry in Mexico for 2009 will shrink by 4.9 percent compared to last year. Consequently, a continuing soft demand for construction materials, such as wire rod and rebar, is also expected.


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