The last couple of months have been challenging to say the least for the Mexican recycling industry, with organic issues being the steep drop in LME values for most non-ferrous metals and still-unreliable shipping schedules resulting not only in long but also highly uncertain transit times.
But these organic challenges have not been the ones in the spotlight for the domestic recycling industry. Given the recent disconnect between prices paid at street level and consumer prices, both domestically and internationally, it has become evident that VAT tax distortion has returned to the Mexican scrap trade. This is toxic to our trade because it rewards the dealers willing to take higher fiscal risks instead of those operations committed to efficiency and transparency. Risk can be harmless in the short term and even the medium term, but in the long run it inevitably hurts the recycling industry and the industries that depend on recyclable metals. Advancing recycling rates and the environmental benefit to be gained from recycling requires long-term investment and commitment, not short-sighted and short-termist strategies.
However, VAT concerns have taken a back seat as, on October 3, the Mexican presidency issued a document outlining measures to try to curb food inflation, including a ban on aluminium and steel scrap exports as it is presumed that aluminium and steel prices have a correlation to food inflation. At the time of writing and pending official confirmation whether the measure has been approved or not, the ban could even come into effect during the week beginning October 10 and remain in place at least until February 28 2023.
Major yards are working with trade associations to inform the government about these misguided assumptions. Aluminium is not used for packaging of basic food items in Mexico, which does not produce the aluminium-bearing food packages used in other countries. Mexico lacks the capacity to consume the volumes that are currently exported.
By the time you read this report, hopefully we will have avoided the ban or else it will be dire times for the Mexican recycling industry.