Automotive Production in Mexico Raises Steel Demand

Published On: April 18, 2014

Over the past five years, Mexico has become a global powerhouse in the automotive industry. Nearly 90% of the world’s top 100 auto parts plants are located in Mexico. The Mexican Automobile Industry Association (MAIA) predicts that by 2017, production will increase nearly 40 percent to over 4 million vehicles. Long-standing auto giants from the U.S., General Motors and Ford, will be joined by Nissan, Honda, Mazda and Volkswagen’s Audi unit in Mexico, cementing Mexico’s standing as the world’s fastest-growing automotive production powerhouse.

As manufacturing in Mexico increases in the automotive sector, cross-related sector demand is increasing as well. The automotive industry is heavily reliant on the production of steel. Costs of production, labor problems, transportation costs and trade barriers have weakened the auto industry’s reliance on U.S. steel produced in Gary and Detroit and other urban U.S. production sites as reliance has shifted to Mexican steel.

As reliance on U.S. steel declines, steel production in Mexico is expected to grow steadily due to steady and increasing automotive demand from the global market. Demand for steel has seen a sharp increase in Mexico as well, and manufacturing in Mexico is increasing for steel as well. The steel industry invested nearly $3 billion U.S. in steel infrastructure over the past five years in Mexico. Steelmaker Altos Hornos de Mexico SA, (“Ahmsa”), has undertaken a $2.3 billion investment to expand production infrastructure in large part to supply automakers. Nippon Steel and Sumitomo Metal Corp. is partnering with Ternium SA on an investment of over $300 million to manufacture and finish rust-resistant steel. Posco, of South Korea, is spending a similar amount to increase its capacity for the same automotive market.

It is no surprise that the international manufacturing giants are migrating to Mexico, particularly to Tijuana, Mexicali, Juarez and Guanajuato. Mexican workers have a world-famous work ethic. Mexican workers deliver consistently high productivity rates compared to other labor sectors. Mexico also has entered into more free trade agreements than most other manufacturing destinations, lowering the cost of doing business by reducing or eliminating tariffs on imports and exports. Mexico enjoys free trade agreements with 44 other countries…far more than the U.S. and Canada. Mexico manufacturing also delivers overall lower production costs than many other countries due to its relatively low labor rates. Over the next 5 years, Mexico manufacturing may be the fastest growing market anywhere in the world.

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