Industrias CH SAB, Mexico’s biggest maker of specialized steel used in car engines, is missing out on a surge in automobile production as competitors’ increased output has lowered prices for the company’s core products.
Sales slid 14 percent in 2013 to 27.8 billion pesos ($2.14 billion) and earnings before interest, taxes, depreciation and amortization tumbled 32 percent to 2.7 billion pesos ($207 million). Sales from the past 12 months fell 7 percent compared with the prior period.
Industrias CH, whose customers include Chrysler Group and Honda Motor Co., capped prices amid heightened competition even as costs rose and Mexico’s auto production climbed 8 percent in June from a year earlier, said Rodrigo Garcilazo, an analyst at Corporativo GBM. Increased output by competitors such as Gerdau SA and Nucor Corp. will produce a glut that will hamper Tlalnepantla, Mexico-based Industrias CH’s growth this year as specialized steel bars known as SBQ will grow 35 percent this year in North America, according to Garcilazo.
A spokeswoman for Chrysler in suburban Detroit and a spokesman for Honda in Torrance, Calif., didn’t immediately respond to an e-mail and phone calls requests for comment on the lower sales.
Mexico is poised to overtake Brazil as the top Latin American automobile producer for the first time in more than a decade as surging exports to the U.S. spur factory openings and record output. Mexico’s ascent is being fueled in part of auto sales running at the fastest pace in almost eight years in the U.S., the country’s largest market. The boom coincides with a slump in Brazilian output through June as domestic demand cools.
“The oversupply in the industry will result in pressure on the prices of SBQ,” Garcilazo said in a phone interview from Mexico City. “There will be more demand in the automotive industry and in Mexican plants, but the production of SBQ will increase significantly creating an oversupply for some years.”
Specialized steel accounted for 62 percent of Industrias’ $8 billion in first quarter sales, according to the company’s April 30 filing to the Mexican Stock Exchange. Production of specialized steel, which makes up 60 percent of the demand in the automotive industry, is expected to increase by 3 million tons this year to meet heightened demand, according to Garcilazo.
Industrias CH declined to comment ahead of the company’s second-quarter earnings report scheduled for late July, Jose Luis Tinajero, the company’s head of investor relations, said in a phone interview. The company is identifying the opportunities that will allow it to improve its position in the American market and continue diversifying its product line, Industrias CH said April 30 on its website.
Industrias CH, which has 25 steel production plants in Mexico, the U.S. and Canada, supplied about 40 percent of the specialized steel bars in Mexico and 20 percent in the U.S., according to the company’s website. An estimated 35 percent of Industrias CH’s products were sold outside of the Mexico, principally in the U.S.
Source – Bloomberg