Mexican Steel: Scrap shortage to increase

Mexico will remain a net importer of finished steel and is facing a challenge, with its scrap deficit expected to swell by 2025, a McKinsey & Co executive said.

The country is expected to generate an estimated 14.3 million tonnes of scrap in 2025, but its scrap consumption is expected to be 17.9 million tonnes, Rafael Scott-Torres, an associate partner at McKinsey & Co, told participants at Fastmarkets’ virtual Mexican Steel Forum 2021 on Monday March 29.

The scrap shortage will increase competition between mills and eventually cause raw materials to evolve into “strategic” commodities at the mills.

Mexico’s scrap prices have increased by more than 50% since 2019 and will continue to follow trends set by the neighboring United States, Scott-Torres said.

Fastmarkets’ assessment of the steel scrap, No1 busheling, consumer buying price, delivered mill Monterrey was 10,000 pesos ($485) per tonne on March 23, up by 22.70% from 8,150 pesos at the start of this year and more than double the nearly three-year low of 4,300 pesos per tonne in late October 2019.

Increases in steelmaking capacity in the southwestern part of the US, such as Steel Dynamics Inc’s mill in Sinton, Texas, and in Northeast Mexico will further constrain scrap supply.

On the finished steel side, Mexico will also remain an importer of finished steel in 2025, Scott-Torres said.  

Flat-rolled demand will total 19 million tonnes in 2025, of which 5.7 million tonnes will come from imports, and long products demand will be 10.5 million tonnes, with 1.3 million tonnes of that from imports, he said.

The North American steel landscape will continue to shift to being reliant on electric-arc furnace (EAF) steelmaking and away from blast furnaces. EAF steelmaking currently accounts for 68% of steelmaking capacity compared with 61% in 2010 and 45% in 2000, Scott-Torres said.  

The continued shift toward EAF steelmaking, which relies on scrap, is going to make the race for raw materials – such as scrap – “interesting” and will motivate Mexican steelmakers to mirror those in the US and start to view scrap as a “strategic raw material,” he said.

In 2025, EAFs could dominate the industry with 80% of capacity, Scott-Torres said. 

Globally, steelmaking has been recovering from the impact of Covid-19 since the third quarter of 2020. The price volatility and high demand for high-quality prime scrap will continue through the remainder of the year before normalizing, he said, noting that lead times for steel are out to 10 weeks in some instances.

This compares with the more typical three-week lead times.

Gain forecasts, insight and outlooks into raw material availability during times of scrap supply tightness at the virtual Scrap, DRI and Mini-Mills (April 13-15). All content available on demand.

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