I still find it mind-boggling that if you fly an hour and a half from Chicago to Canada, you can land in a city that resembles something closer to Europe than to any city in America. I’m talking of Montreal of course. So it’s shocking to me that the price for steel in El Paso Texas could be 10% cheaper than the exact same steel found less than 10 miles away in Mexico. Which begs the question, if steel prices are coming down fast in the US, how can they be going up in Mexico and likely to make the news come December?
If you guessed the reason for the increase had something to do with Mexico’s recent peso crash, you would be right. MetalMiner covered that story here. According to our man on the ground in Mexico, German Dominguez, the feedstock or raw material inputs which go into steel production are more expensive because many of those inputs are procured in dollars. However, those sales occur in pesos and therein lies the rub. Small metal fabrication shops that rely on Mexican service centers for their semi-finished metals aren’t getting any benefit on the sales side because they sell in pesos. The maquiladora, however, do not face the same problem as the local fabrication shops because they sell their products in dollars.
The president of the Association Latin American Micro, Small and Medium Business (Alampyme), Pedro Garcia Salcedo, said that before the crisis, [Mexican] SME’s faced with the threat of dropping US demand will need to participate in more export activities. Add that on top of the rising steel prices and Mexico is also at high risk for a severe economic slow-down, particularly for SMEs. Small Mexican fabricators that lack the sourcing know-how or buying clout to purchase materials in the US or from service centers in US dollars are at heightened risk.
Should US buyers be concerned about potential price hikes from Mexico? In short, no, if you are aware of where/how your fabricators are procuring metals in Mexico. The maquiladora industry will be protected because they sell in US dollars. But if you are working with small fabricators and buying in pesos, you are at risk of price hikes. We will continue to follow this story.