THE STATE OF STEEL

Mexico 2015 | INDUSTRY & MINING | VIP INTERVIEW

TBY talks to Eng. Alejandro J. Hauser Canales, General Director of Grupo ABX, on what is currently making the Mexican steel industry tick.

From 2009 to 2013 the Mexican steel industry enjoyed a period of growth. How did Grupo ABX perform in that period?

There has been a strong upward trend from 2010 onward following a poor performance in 2009 due to the crisis. Nevertheless, over the past year and a half, international steel prices have seen a decline in the face of Chinese slowdown, whereby we have seen a recent reduction in margins.

Grupo ABX comprises five companies. What role does each play within the overall group?

ABX works at the middle and the end of the supply chain providing steel products and services for the construction and industrial sectors. We are organized into 5 divisions: ABINSA, which provides a wide range of steel products to construction, low-end industrial, and distribution customers through its 10 distribution centers in Mexico; AB STEEL, transforms and processes flat steel for automotive and high-end industrial customers at its 2 two plants in Monterrey and Querétaro; MAQUILACERO, which manufactures steel tubes for construction and industrial customers with one plant in Monterrey; TEFLU, which transforms tubes into industrial parts and assemblies for automotive and high-end industrial customers at its two plants in Puebla and Monterrey; and AB TECH, which transforms special steel bars into cold finished bars and parts for industrial customers with two plants in Monterrey and Querétaro. Mexico's construction sector has not been as dynamic as the industrial sector, especially automotive, which has grown significantly. Overall, construction represents about 55% of our business, while the rest is industrial.

Mexico's automotive sector is important, and is expected to continue showing excellent growth rates over the coming years. How promising will this be for Group ABX?

This emerging trend in Mexico began five years ago with the arrival of new automotive companies including BMW, Honda, Mazda, Audi, and Kia, all of which represent a large market for steel products and services. By then, we had already refocused our strategy and prepared to take advantage of the coming trend. That is why we invested in state-of-the-art facilities in Monterrey, Querétaro, and Puebla and reorganized our operations for the new scenario. Manufacturing and servicing steel products for the construction sector is different than doing so for the automotive sector, and this reality has required us to adapt our organization. We expect to ride the wave and become an important player in this segment.

In 2012 you opened a new service center in Queretaro. What role does it play in your domestic portfolio?

We have been gravitating toward the automotive industry. Our first state-of-the-art service center was built here in Monterrey in 2007. That was seven years ago, and two years ago we set up in Queretaro, another major plant that for us marked a major investment. From this new hub in Queretaro, we service first-tier companies in the chain for Nissan, Honda, Mazda, and BMW. It is a good location for us as Queretaro is part of the “El Bajío" region, where growth is much in evidence. On the other hand, from Monterrey we service several first tiers, or automotive and auto parts companies located in the north, which in turn supply GM, Ford, Chrysler, and others. The new Kia plant in Pesquería represents an opportunity for us that we expect to pursue. Another region that will see a sharp impulse from the automotive sector is Puebla and Tlaxcala, where VW is located, while the new Audi plant will shortly commence operations. There we have a plant making tube parts and assemblies for the first tiers. We acquired that plant two years ago and subsequently built a new one here in Monterrey in 2013.

How important is the US market for ABX?

The US is a key market for our operations. We export our tubing products directly, and are one of the leading exporters of lightweight structural tubing. We export to all the Southern states of the US. We have endorsed a US Department of Commerce (DOC) dumping investigation, and each year we submit information to the DOC so it can check our pricing and make sure we are not applying dumping prices that damage the local US steel tubing industry. Other exports that we work on are virtual or indirect, where we supply local US or foreign companies that transform a product and then re-export it. There are many programs, especially in the automotive segment, in which the entire supply chain makes virtual exports to manufacture auto parts, which are then shipped to the US, Europe, Asia, or elsewhere.

“ABX works at the middle and the end of the supply chain."

What is your long-term outlook for the steel industry in Mexico?

Steel is a cyclical product and, as such, we are subject to changes in the global economy, especially in pricing; we have to beware of that. Then, I see more regional cooperation in the future, and that eventually the North American Free Trade Agreement (NAFTA) region will become much more integrated than it is today. In this manner, we will present a common front against Asia or Europe or other regions. I see a positive short-term outlook for NAFTA. On the other hand, domestically, the new rules for the energy sector will bring substantial investments that are intensive in the use of steel. In this context, I think that eventually internal consumption will have to catch up in terms of better wages and more jobs, which in turn should generate more consumption and local production of goods, houses, buildings, and so on. I see a bright future for Mexico. Of course, it would be much easier if the global economy recovers and had some help from China, for example, because it is such a major player in the global economy, as the world's largest consumer of steel, as well as being the biggest producer.

Where do you see Grupo ABX over the coming years?

We have made the right moves, and are determined to take advantage of this growth. We have a good organization and well-trained people who can deliver, so I anticipate Grupo ABX being successful over the course of the next decade, and foresee expansion through our strategy of providing more value-added products and services to our clients, not only in Mexico, but also potentially abroad.

© The Business Year - January 2015