n° 168 – September/October 2020

Mexico is experiencing a dislocation between the economic data reported in the press and the non-ferrous market dynamics seen on the street. GDP estimates for Mexico in 2020 range from -9% to -11%, domestic car sales have plummeted and are expected to close the year 28% lower than in 2019 while car exports are expected to fall 20% in 2020.

At the time of writing, however, scrap aluminium grades relating to secondary production are booming as the automotive industry, die casters and smelters strive to ramp up after depleting the inventories they carried during the shutdown. Scrap is scarce as fewer used cars are being imported into Mexico and fewer old cars are being scrapped; at the same time, export demand is also robust, creating hyper-competitive conditions for these grades.

As always, not everything can be totally positive or totally negative. This extremely tight market has provided the environment for VAT to re-emerge as an issue in the Mexican market for secondary aluminium grades, distorting the pricing landscape and also mining the cash-flow and fiscal risk map for all players in the industry.

Another scrap grade in high demand domestically is the 6000 series. The reasons behind this spike in demand are more permanent than for secondary aluminium grades because at least two new billet casthouses have gone online this year in different parts of the country with a total capacity for both of around 50,000 tonnes per year. During recent months, Mexico has become a net importer of these grades and is likely to remain so.

The Mexican peso has fluctuated between MX$ 20.90 and MX$ 22.43 to the US dollar over the last 30 days. This 7% range has provided an extra variable with which scrap traders have been forced to deal.

There is concern within Mexican business circles about the erosion of certainty for private investment within the country. Laws and regulations are being changed abruptly, permits and concessions are being cancelled or unilaterally revised, and new licences, permits and regulations are being imposed. Close attention will be paid to see if such a climate results in a loss of foreign investment.