The challenges that we had observed in the first half of the year and that we had hoped would gradually clear over time have only become more acute.
The scrap industry in Mexico is facing multiple headwinds: industrial deceleration partially caused by the US-China trade war and by cyclical factors; uncertainty about the US-Mexico trading relationship as the USMCA trade agreement has yet to be ratified by US Congress; and uncertainty within Mexico as the country’s new left-wing government has so far failed to provide private investors with certainty and has also failed to carry out public spending that would help to ease the slowdown in the domestic economy.
Mexico’s leading industry, automotive, is going through a cyclical slowdown with production dropping 10% since last year. With this, demand for secondary aluminium is down at a time when supply has never been so plentiful due to the US-China trade war redirecting US scrap flows away from China and into other countries such as Mexico.
At the same time, LME values for scrap aluminium are seeing multi-year lows and excess volume is translating into record scrap discounts. This combination is resulting in scrap prices so low that they are acting as a disincentive to collection and recycling. As in other countries, changes in tax laws are creating a riskier and more challenging environment for all private businesses, including recycling companies.
This perfect storm that has brought headaches and hardship will surely help propel our industry towards evolution. I look forward to seeing you in Budapest and hearing my colleagues’ perspectives on where our industry is heading.
Glorem SC (MEX), Chairman of the BIR Latin America Committee