Due to the size of the industry in Mexico, many companies depend on specific materials to operate, one of which is steel. The steel industry is one of the most important ones worldwide since many other sectors revolve around its production.
For example, according to the National Chamber of the Iron and Steel Industry (CANACERO), 61.5% of its production is destined for construction in Mexico, 10.6% goes to the automotive industry, 18.8% is used in metallic products (hardware essentials, etc.), among others.
If we analyze the price of this material, we can see that it increases or decreases based on a series of circumstances that impact domestic and global production and consumption.
We will look at some factors that directly and indirectly affect steel prices.
Factors affecting steel prices
The Center for Economics Studies of the Construction Sector (CEESCO) asserts that the rises and falls in steel prices are due to:
- An increase in domestic demand
- The growing incursion of Chinese steel
- The depreciation of the peso against the dollar
- An increase in domestic and foreign demand
Together with this, it is worthwhile considering the following:
Trade agreements
Steel prices’ ups and downs also depend on the foreign trade agreements signed. This will reflect on international negotiations to reduce tariffs on steel imports and exports.
CEESCO also indicates that in June 2018 both Mexico and the United States increased steel tariffs on their imports. What is more, from that date on, steel from Mexico, Canada, and Europe paid 25% in tariffs to enter the US.
All of this is the result of the agreements in force, such as NAFTA, or other agreements entered into by members of international organizations that help regulate foreign trade among the countries, such as the World Trade Organization, of which Mexico is a party.
Dumping practices and their impact on steel prices
According to the World Steel Association, global gross steel production is distributed in around 64 countries across the world, and 151.5 million tons was produced as of September 2019, representing a slight contraction of 0.3% compared to 2018. Nevertheless, dumping practices directly affect the steel economy worldwide.
What exactly is dumping?
It consists of selling a product below its original price; for example, in 2017 Chinese steel production had a surplus of 5.7%, making steel prices fall in the past years, as data from Expansión Mx have shown.
Dumping causes countries like Mexico to have their own antidumping standards to regulate or avoid product surpluses (like steel) in order not to harm their local economy.
In addition, world-class steel companies in the country have sought to change their strategic partners to improve the conditions in the industry without affecting their domestic production and Mexico’s steel costs.
Now that you know what factors are involved in steel prices, try to be aware of the national and international events to get ready for the upcoming purchases of steel materials.