High energy, logistics costs hold back growth of Mexico’s steel sector

Platts

Sao Paulo, 15 Jan (Platts).-  High costs for both energy and logistics have been holding back the expansion of the steelmaking industry in Mexico, Jose Luis de la Cruz, manager director at the country’s Institute for Industrial Development and Economic Growth (Idic), said in an interview Thursday.

For the period between 1999 and 2010, “the price of electric energy doubled in Mexico, harming not only the steel sector, but the whole domestic industry as well,” he said.

Power is a primary cost in steelmaking, he noted, adding that electricity accounts for some 25%-35% of a producer’s expenditures.

Last year, Mexico approved energy reform legislation, opening the country’s energy sector to competition for the first time since 1938, including allowing private companies to invest in its oil and natural gas sector.

“With the reform, new investments in the sector began, but results will only be seen in two years, when the construction of the basic necessary infrastructure is completed,” said de la Cruz. “At that moment, what we expect is the stabilization of energy costs. Some kind of [price] reduction is only expected in the long run.”

Costs related to logistics are also elevated, and “new railway projects are still being developed,” he said.

Another solution said to be under discussion is the approval of utilization of the railway lines by more than one company, he noted.

“Currently, only one firm is allowed to use each specific line. If there are more companies circulating in each stretch, there will be competition. Therefore, prices for fleets will be more competitive,” he added.

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