Mexico mulling US steel quotas as Brazilian shipments soar

Mexico is considering accepting quotas on its shipments of steel to the US instead of tariffs, despite signs of a recovery in exports to its northerly neighbor.

Máximo Vedoya, president of Mexican steel industry chamber Canacero, told Reuters that chamber officials had been called to Washington to discuss replacing the 25% tariff with quotas.

"Talks are taking place now and the most important thing for the steel sector is to move forward under the principle of complete reciprocity," Vedoya said via a spokesperson.

Negotiations on the future of the Nafta trade deal between the US, Mexico and Canada are ongoing. A successful overhaul of the agreement would see the 25% tariff on Mexican steel removed, US commerce secretary Wilbur Ross said in June.

EXPORT DATA

The talks come as new figures show Mexico's steel exports to the US recovered in July.

Meanwhile, Brazil – which has quotas in place and is exempt from the tariffs – saw a much sharper rebound, suggesting that quotas could be a better arrangement than tariffs.

Brazil's quotas came into force on June 1, the same date as the 25% tariffs were slapped on Mexican steel.

Brazil shipped 456,792t of steel to the US in July, up from 256,751t in the same month last year. By value, exports were US$284mn, up from US$149mn, according to US Census Bureau data.

The figures are up from 253,102t and US$161mn in June.

Mexico's steel exports were 283,283t, a slight decline from 294,912t in the same month last year. By value, shipments were up US$28mn at US$258mn.

However, the figures were an improvement on 221,405t and US$189mn in June.

BIGGER PICTURE

Steel exports to the US from Latin America, which are dominated by Mexican and Brazilian shipments, rose to 763,195t in July from 589,637t in the same month of 2017.

The figure is up from 495,901t in June. Shipments from Latin America averaged about 676,000t per month in January-May.

By value, Latin American exports of the metal were US$570mn in July, up from US$414mn in the same month last year and US$476mn in June, in part due to higher steel prices.

Global steel exports to the US in July were 2.70Mt, down from 3.16Mt in July 2017. By value, shipments were US$2.56bn, down from US$2.69bn. The figures for this July are preliminary.

ANALYSIS

The July data are a further indication that more time will be needed to assess the impact of US tariffs and quotas on Mexican and Brazilian steelmakers.

Figures for the previous month suggested a significant decline in shipments from Latin American countries, but this has been followed by an improvement in July.

The rebound in Mexican exports in July provides support to the theory that US steel demand remains strong and that Mexican steelmakers are well-placed to continue to help meet that need, despite the added costs associated with the tariffs.

While the surge in Brazilian steel shipments to the US was much steeper than that seen in Mexico, quotas could have a much bigger impact on shipments if they are filled later in the year, which remains a real possibility.

The quotas are based on average exports over the last three years, and were set at 100% of the average for semi-finished steel and 70% for finished steel.