Mexico

GDP growth of 0.5% during last year’s fourth quarter gave a full-year figure for 2022 of 3.1%. However, analysts reckon that Mexico faces threats in 2023 of a slowdown in the US economy, inflation that has ranged from 7% to 8% and high interest rates (currently, the Mexican central bank reference rate stands at 11%). Amid these headwinds, the growth estimate for 2023 is a modest 1%.

In more optimistic news, the Mexican auto industry continues to recover, with February seeing good growth figures for light vehicle production, exports and also domestic sales: production during the month amounted to 297,787 vehicles for an increase of 9.9% over February 2021 while the cumulative growth was 6.1%; auto exports during February totalled 230,484 units for a gain of 14.2% compared to the previous year, with cumulative growth at 12%; and domestic sales of 101,911 units represented growth of 28% over the previous year, with the cumulative growth figure at 24%.

The recovery in auto production is translating into more consistent demand for scrap grades used to produce secondary aluminium. Pricing for these grades has been resilient and even bullish for some weeks.

However, demand for scrap used by rolling mills has not been as consistent. UBC demand from Mexican rolling mills is structurally limited while that from US mills has also been modest. Coupled with low LME values, this has resulted in UBC prices low enough to be attractive to smelters producing secondary aluminium.

Demand for extrusion scrap has also been limited during the early part of the year. Also available is 6000 RSI, which is commonly bought by at least two cast houses that are currently out of the market. Low scrap demand has emerged amid declining extrusion production and high billet inventories at extrusion companies as well as at Mexican ports. Demand for extrusion scrap is likely to be discrete in the coming months.

Red metal scrap continues to be supported by exports. Exchange rate volatility remains a major challenge for export yards: during the last 30 days, the Mexican peso has seen a high of MX$ 17.98 to the US dollar on March 8 and a low of MX$ 19.01 on March 15 (at the time of writing, it stands at MX$ 18.75). A strong peso erodes the profitability of export yards and complicates export sales decisions.