INTERVIEW: Mexican steel industry must seek regional strengthening in 2025: Canacero

The Mexican steel industry needs to enhance its supply chains next year by prioritizing national content and import substitution to effectively meet market demands for nearshoring, Salvador Quesada, general director for the chamber of Mexico's iron and steel industry (Canacero), told S&P Global Commodity Insights.

Despite the perception of a highly protected steel sector, Quesada highlighted that finished steel imports in Mexico accounted for 46% of consumption so far in 2024.

"The industry is competing against state-owned enterprises and is contending with overcapacity issues in Asia. The challenge is not limited to China but extends to its satellite countries in Southeast Asia," he said in an interview.

Canacero projects that finished steel imports will reach 12.6 million mt in 2024, representing a 0.4% increase compared to 2023. Conversely, steel production is expected to end the year at 18.3 million mt, down 7.9% from the previous year.

"We are more competitive than China, even without subsidies, and we must protect ourselves against unfair practices," Quesada stated.

In addition to regional strengthening, Quesada emphasized the need to enhance competitiveness through strategic alliances among companies to share knowledge, technology, and best practices.

He also highlighted the importance of improving the movement of goods and commodities within Mexico by modernizing ports, roads, and rail systems.

Moreover, he argued that implementing business-friendly tax policies is essential to leverage nearshoring opportunities fully.

Implications of 25% tariff in the USMCA

According to Quesada, the second Trump administration's security and migration policies jeopardize Mexico's integration into nearshoring efforts. The potential result would be a breakdown in value chains and a nullification of the United States-Mexico-Canada Agreement disciplines.

"However, tariffs would also penalize American consumers by driving inflation and prompting Mexico to respond with retaliation," he warned.

With 80% of Mexico's exports going to the US, Quesada noted, "In terms of steel, reciprocal tariffs could impact approximately $10.4 billion in total trade between Mexico and the US, but the effect would be greater on the US as Mexico operates at a steel product deficit."

Sustainability: a competitive advantage

Globally, the traditional steel industry primarily relies on processes that produce higher levels of pollutant emissions. In contrast, Mexico's steel industry has made significant strides in sustainability and innovation.

"Mexico possesses a competitive advantage in the steel sector regarding environmental protection compared to other regions," Quesada remarked.

According to Canacero's estimates, utilizing data from the World Steel Association from 2022, 93.5% of steel production in Mexico is achieved via Electric Arc Furnaces (EAF), resulting in 10.9 million mt of recycled steel.

Regarding decarbonization, Mexico generates 48% fewer emissions per metric ton of steel produced (1 tCO2/t) than the global average (1.91 tCO2/t) and has reduced CO2 emissions per metric ton of steel by 28% over the last decade.

Additionally, 5% of the electricity used in the steel industry comes from clean energy sources. Mexico consumes 48% less energy per metric ton of steel produced (11 GJ/t) than the world average (20.99 GJ/t).

Furthermore, data shows that Mexico operates 17 industrial wastewater treatment plants, with 18% of its water supply sourced from reuse, demonstrating its active commitment to water sustainability.