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Mexican steel sector mixed on how US tariff removal will affect pricing

Sao Paulo — The Mexican steelmaking sector is celebrating the US decision to lift its 25% tariff on Mexican steel, but views are mixed on the potential effects on domestic and export pricing in the near term.

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While several market participants expect to see an immediate increase on export volumes to the US, helping to put a brake on the landslide trend in prices domestically, others warned of potential downward pressure from US customers.

"Exports to the US will increase, but there is some uncertainty clouding the US market, as they are waiting to see what may also happen with the tariffs imposed against China," a source at a Mexican producer said. US customers are already pressing them to reduce export offers as they are holding off orders, he added.

Bids from the US have been reported about $10-$15 lower for longs products, $15-$25 lower for flats, sources said.

"US mills are able to cut prices given their wide margins, but we are not in the same situation, and we are not willing to slash offers," another producer source said. He stressed that there will be greater competition from Canada and Turkey.

Mexican players also commented on the depreciation of the Mexican peso against the US dollar, which has inflated the costs of its main raw materials, including ferrous scrap, electrodes, electric power and transport.

Domestic flats and longs steel prices in Mexico have been in a fierce downtrend since the second half of 2018, accumulating drops of about 15% and 23%, respectively, from June 2018 to May 2019.

"Mexico was not able to reroute its exports of flats steel products to elsewhere outside the US," one source added, pointing to the impact of the 25% US steel import tariffs on Mexican products. "And the domestic automotive industry has also been on a slow pace".

On the longs side, construction, infrastructure and public works continue to lag amid weak public spending and a lack of investor confidence.

"We expect at least to see domestic rebar prices to stop falling," another producer said.

One of the sources disagree, saying there is still room for rebar prices to go down in Mexico, recalling that these prices went up about 50% in H1 2018 in the wake of the US 232 developments.

"Flat steel prices rose about 17% in the same period," he said.

In addition, Mexican steel producers also want to take a cautious approach in terms of pricing its exports following a more aggressive monitoring agreed among the countries to prevent surges in imports of steel products into the US.

"The US will be monitoring Mexico much more than before," the first source said.

-- Adriana Carvalho, adriana.carvalho@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com