Mexico

Mexico’s macro-economic backdrop has weakened of late. The economy unexpectedly contracted in the third quarter of 2025 - by some 0.3% versus the previous three months and by around the same year on year - amid “greater weakness ... than previously anticipated” in manufacturing. In response, Banxico has halved its GDP growth forecast for this year from 0.6% to just 0.3%. The Mexican peso remains relatively strong and stable, fluctuating roughly between MX$ 18.30 and MX$ 18.70 to the US dollar over recent times and standing at around MX$ 18.30 by the end of November.

Meanwhile, the US manufacturing sector continues to struggle. October’s purchasing managers’ index came in at 48.7, marking the eighth consecutive month of decline and an almost continuous three-year industrial slump. This prolonged US contraction is a significant drag on Mexican industry, dampening scrap metal generation and demand.

Mexico’s critical automotive sector has lost some momentum. Vehicle production in October fell 3.72% year on year while January-October output of 3.38 million vehicles was down 0.69% on the same period in 2024. Export shipments have softened too, reflecting weaker external demand. Domestically, auto sales are mostly flat, but the industry faces headwinds from higher costs and trade uncertainties. US trade measures are already adding costs to vehicles, while semiconductor shortages and cooling consumer demand pose additional challenges.

Trade tensions and policy shifts are creating uncertainty for the metals and manufacturing markets. Mexico has floated a bill to impose new import tariffs on sectors including automotive parts and machinery - particularly from countries without trade agreements, such as China. Tariffs of up to 50% on vehicles and parts are under consideration. While these measures could raise revenue, they risk disrupting supply chains and increasing costs.

On the aluminium front, Mexico is expected to impose a 10% tariff on imports of primary metal, despite not producing this domestically. There is still the risk of Mexican export restrictions on scrap metal, especially in the absence of a long-term Mexico-US trade framework on steel and aluminium.

Demand for aluminium scrap has moderated slightly in Mexico. The market for clean mill-grade aluminium scrap is balanced to soft as domestic casthouses reduce output and substitute imported billet or slab. Strong US demand continues to pull high-grade scrap northwards, offsetting local weakness. Demand for secondary alloys such as ADC12 and A380 has cooled modestly in line with the automotive slowdown.

Operational challenges are also affecting the scrap ecosystem. Scrap yards in several regions are increasingly facing security issues and extortion threats. Some have curtailed operations or closed entirely, reducing scrap recovery and complicating material flows. Combined with economic and policy uncertainties, this means that the market ended November on a cautious note.

Overall, a softer US industrial cycle and cooling domestic manufacturing have tempered demand and softened prices. Policy uncertainty - from tariffs to possible export restrictions - remains a key theme heading into 2026.