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Deacero, a prominent player in Mexico's steel industry and renowned for its metal scrap recycling, is undertaking a strategic move to enhance its profitability by importing "beach iron" from the United Kingdom. This material, locally referred to as "chorreadura," represents a significant shift in the company's sourcing strategy as it seeks to partially replace scrap metal, which has a lower price point.
Beach iron is a residual product derived from the steel manufacturing process, particularly from blast furnaces. Traditionally considered waste, this material is rich in iron content, averaging around 90%, though slightly lower than the typical 99% found in metal scrap. Despite this, its cost-effectiveness makes it an attractive alternative for steel mills, including Deacero.
One of the primary reasons for considering beach iron is its significantly lower cost compared to metal scrap. While the exact pricing may vary, it is speculated to be tied to the price of HMS scrap on the Chicago Mercantile Exchange (CME), albeit with a discount reflecting the lower iron content. This could potentially place the cost of beach iron between $220 and $260 per metric ton, a notable discount from the prevailing HMS scrap price of $330 per metric ton.
By incorporating beach iron into its production processes, Deacero anticipates a substantial reduction in its casting costs, which could translate to a cost saving of between 21% and 33%, based on current market prices. This strategic shift is expected to bolster Deacero's profitability significantly, particularly as the company undergoes a significant restructuring, including a substantial reduction in its workforce, primarily in Mexico.
Before the personnel cut, Deacero employed over 10,000 workers across its operations, which included three mini mills, 19 production plants, and more than 20 metal scrap collection centres. The company is also expanding its operations with the construction of a new steel mill in Ramos Arizpe, Coahuila, adding to its existing facilities in Saltillo and Celaya.
Deacero's decision to import beach iron underscores its commitment to innovation and cost efficiency. This move not only reflects its strategic response to market dynamics but also positions the company for sustainable growth and competitiveness in Mexico's steel industry.
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