Download Markets - Mexico beats US and Canada by a mile

Markets: Mexico beats US and Canada by a mile
30 Mar 2017
Region: Global, Topic: Prices, Market & Product: End Use (Cable Materials supply, Construction, Oil/Petchems/Gas,
Power Utilities, Renewables, Transportation), Energy (Harnesses and Assemblies, HV Power Cable, LV Power Cable,
MV Power Cable, Overhead Conductors, Submarine Power Cable, Winding Wire)
North America saw a 1.3% increase in copper wirerod used in wire and cable production for 2016 to 1.46
million tonnes for 2016.
This was mainly driven by Mexico, which showed a 9.2% increase in copper wirerod used in wire and cable
production, reaching 423,000 tonnes. This compares to a contraction of 1.9% in copper wirerod used in wire and cable
production in the US, the largest market in our North America region, to 960,000 tonnes. The primary reason for this is
that a lot of the cable used in the US is imported, with a lot of this coming from Mexico. Canada did not fare too badly,
considering the challenges that 2016 presented, with a 1.8% increase to 79,000 tonnes.
Most of the growth came from energy cables, with North America seeing a 2% y/y rise in copper wire and cable
consumption to 1.28 million tonnes and a 2.9% y/y increase in copper write and cable production to 976,000 tonnes
for 2016. The key drivers for energy cables in North America were the automotive industry in Mexico and the US, as
well as construction in the US and Canada, plus satisfactory spending in utilities infrastructure spending, particularly in
the US.
In the US, consumer spending was the only consistent driver of growth in 2016. Employment increases were smaller
but still steady and incomes rose. Both of these factors should support growth in the housing and vehicle markets in
2017 as well. In the US, single family dwelling start-ups were up in 2016, but multi family dwelling units were down. In
Mexico, while the economy took a hit from lower oil and gas production and prices, car manufacturing has provided
most of the growth in 2016, as did exports of wire harnesses, winding wire and LV cable to the US for use in the
automotive and appliances industries. However, cables into the oil and gas industries in all three North American
countries continued to suffer.
United States
We are now more optimistic regarding the US economy for two main reasons. First, business confidence is on the rise
and, historically, within two to three quarters of a shift in sentiment, investment spending by companies has increased.
Since the shift occurred after the election, a higher contribution to GDP growth from investment could emerge as early
as Q3 2017.
Second, the Trump administration's rhetoric on trade has lessened so the negative effects from higher tariffs on China
and Mexico, in particular, present much less risk to the outlook in 2017. We now expect GDP growth of 2.3% this year,
rising to 2.5% in 2018.
The residential construction sector continues to expand, with the single-family sector driving growth, as expected,
supported by a robust job market. Along with better than expected spending on non-residential structures, we project
US construction output to grow by 4.5% this year.
We continue to expect total vehicle output to decline by 2.5%, given model platform plans already in place and the
excess inventory of cars which will dampen sales.
Now that the energy sector is on the mend and manufacturing has picked up, total IP is forecast to rise by 1.8% this
year and 2% in 2018. The key risk to our IP and GDP forecasts in 2017, both upside and downside, is the level of
investment spending achieved by US companies.
Mexico
President Trump's stated policies to renegotiate NAFTA, restrict immigration and "Buy American" caused a massive
drop in the peso and prompted at least one US automaker to terminate a capacity investment. A protectionist America
has negative consequences for Mexico's future growth potential.
However, the risk of the dissolution of NAFTA appears to have decreased. As a result, North American supply chains
are less likely to experience disruption this year which should allow GDP to expand by 1.9%. Although the weaker
peso is positive for exports and remittance income from the US, interest rates have increased in order to combat
higher inflation and will potentially constrain investment spending. Oil prices have risen, but not by enough to
significantly boost government spending. As a result, we project growth in construction output of just 1.5% this year.
In December 2016, Mexico auctioned eight deepwater oil & gas blocs and agreed a joint venture for a promising new
field. This is a positive development for the country's energy sector and will be a source of stronger growth potential in
the medium term.
Contributor: Natalie Noor- Drugan, Publisher & Editor in Chief, Wire & Cable News