5 September 2023 – The Chinese government presented its “Work Plan for Steady Growth of the Iron and Steel Industry” at the end of August. Market participants expect a drastic reduction in crude steel production from October. And Mexico’s economy will receive a strong boost.
Mexico’s economy gets a boost
The MSCI Mexico gained a good 27 percent in Euro 2023 through the end of July – five percentage points more than the broad Latin American market.
Since then, however, Mexican equities have been down four percent – although the economy appears to remain intact: Services sector activity and retail sales increased 0.7 and 2.3 percent, respectively, in June from the previous month. Construction activity grew dynamically at plus three percent. Gross fixed capital formation climbed 4.5 percent in May and is now 16.5 percent above pre-pandemic levels.
The Mexican economy is receiving a boost from U.S. ambitions to diversify its supply chains. Given the buoyant economic momentum, it would not be surprising if Mexican corporate earnings growth in the coming years is higher than analysts’ forecasts.
New work plan: Chinese government to limit steel production further
The Chinese government presented its “Work Plan for Steady Growth of the Iron and Steel Industry” at the end of August. The ambitious plan, which was drawn up in cooperation with several ministries and key authorities, calls among other things for strict adherence to the targets for reducing overcapacity in steel production.
Reduction of up to 40 million tons of crude steel needed
In order to still achieve this target for 2023, market participants expect a significant and rapid reduction in the Chinese crude steel production by 30 to 40 million metric tons from October.
More recycling of steel scrap and higher EAF production
In addition, the Chinese government’s “Work Plan for Steady Growth of the Iron and Steel Industry” specifically addresses the expansion of steel production with the electric arc furnace. One of the measures to be taken is to increase the recycling rate of steel scrap. This should further increase the scrap ratio in Chinese steel production.
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