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Made-in-Mexico Steel Gets $3 Billion Boost from Global Automakers

29 September, 2014

As Mexico’s auto industry continues to thrive, nearly doubling since 2009, its steel industry will pour nearly $3 billion into new and improved factories to support this growing trend.

“Auto exports are going to be the new oil for the Mexican economy,” stated Barclays Chief Economist Marco Oviedo in a phone interview with Bloomberg. “They have gone from 4 percent of the gross domestic product (GDP) to close to 6 percent.” 

In addition, with all of the newly announced investments of late, this number is likely to hit 8-9 percent in the very near future, which is nearly twice the amount of oil exports from 2013, as a percentage of the GDP. As a result, steelmaker Altos Hornos de Mexico SA (Ahmsa) is completing a $2.3 billion expansion, in large part to supply automakers in Mexico. In addition Ternium SA and Nippon Steel & Sumitomo Metal Corp are teaming up to invest in rust-resistant steel, while South Korea’s Posco is investing $300 million to more than double its ability to produce similar products.

“The Mexican Automobile Industry Association predicts output will climb almost 40 percent to 4 million vehicles in 2017 as Nissan Motor Co.,Hondo Motor Co., Mazda Motor Corp. and Volkswagen AG’s Audi unit build factories that join long-standing plants for U.S. carmakers General Motors Co. and Ford Motor Co.,” writes Bloomberg.

Automakers are attracted to Mexico in part because it offers low labor-cost output with easy access to North and South American markets and other regions through the nation’s trade agreements with more than 40 different nations worldwide. Also of note, Japanese automakers are using the opportunities in Mexico to take advantage of the Yen’s strength against the dollar.

According to Bloomberg, Mexico is the world’s 13th largest maker of steel, and imports climbed 36 percent to hit a record 9.6 million tons in 2013. U.S. plants ArcelorMittal, AK Steel Holding Corp. and U.S. Steel Corp. are among the larger exporters of steel to Mexico, serving as farther proof that Mexico is quickly becoming a crucial global manufacturing hub. In the near future, local steel companies in Mexico are expected to begin competing with these imports, offering a shorter supply line and cheaper production costs. 

“The Mexican steel industry will invest $11 billion in the next four years,” stated Alonso Ancira, president of the iron and steel chamber and chairman of Ahmsa according to Bloomberg.

In addition,Ford is reportedly ready to begin buying more Mexican-made steel for its existing factories in Hermonsillo and Cuautitlan, and the industry already employs more than 53,000 workers – a number that will grow substantially over the next year or so. Add to this the fact that Mexican vehicle output has jumped by more than 91 percent since 2009, and it’s easy to see why its automotive output is expected to continue growing into the future.

“Nissan is scheduled to open a $2 billion factory by the end of the year,” writes Bloomberg. “About 150 miles away,Tokyo-based Honda plans to open an $800 million factory next year with capacity for 200,000 Fit small cars.”

Mazda will also open a new factory this year in Mexico to the tune of about $650 million, while Volkswagen’s Audi will begin assembling its Q5 sport-utility vehicle in a new $1.3 billion plant in 2016. In 2013,Mexico already accounted for more than 19 percent of North American car and light truck production, an 11 percent jump from 2000, and PriceWaterhouseCoopers estimates that labor costs in the Mexican automobile industry are about 20 percent of what they are in the U.S. and Canada.

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Topics: Investment Industry