【Ferro-alloys.com】：Mexico's mining production shrank 0.2% year-on-year in April, after dipping 1.5% in March, according to revised figures from statistics agency Inegi.

The data in the agency's monthly indicator of industrial activity (Imai) "point to an unfavorable trend" in metal and non-metal mining, according to economic analyst Pedro Tello, an expert on industry issues in Mexico.

"In 10 of the last 12 months since May [2022], activity has recorded drops, with only a temporary upturn in January and February," Tello told BNamericas.

In the first four months of the year, mining production (not including oil and gas) slipped 0.1% compared with the same period of last year, although mining-related services saw growth of 4.9%, according to Inegi’s figures.

During 2022, mining activity was relatively stagnant, falling by 0.6%, mainly due to the weak performance of other industries such as construction and steel.

Tello explained that the production of metal and non-metallic minerals depends on three factors: the behavior of international prices, the demand that exists in Mexico due to the activities of the major sectors that consume these products and the regulatory situation.

And even though there is no well-defined trend with respect to any of these three factors, the analyst said that their behavior as a whole explains why mining production has remained muted.

DISCOURAGING OUTLOOK

“In terms of international prices, a downward trend prevails, with some products showing increases, but not the majority. It's a factor that doesn't help stimulate production,” said Tello.

On the demand side, the analysts recalled that the mining sector mainly supplies the basic metals and steel industry, followed by construction, electricity generation and, in fourth place, the chemical industry.

These four sectors consume 82% of total mining production, with construction seeing a decline and the chemical industry remaining stagnant, while the electricity sector and the basic metals industry have made only modest gains, the latter driven by automotive demand, according to Tello.

Finally, in terms of regulation, two factors have changed the operating landscape for miners, according to the analyst.

"On one hand, the elimination of the deductibility of pre-operating expenses since 2014, mainly in exploration activities which, to some extent, has slowed the development of large investments with a long maturation period," said Tello.

"But on the other hand, recently [since 2019] granting of concessions has been halted, which has limited, suspended or pushed back investment projects," he added.

ECONOMIC GROWTH SET TO SLOW

Although Tello pointed out that it is still too early to make an accurate forecast of the behavior of mining activity over the rest of 2023, he said that in the coming months, growth in national economic activity will slow.

"That means that the electricity, construction and chemical industries will place fewer orders for raw materials," Tello said.

He added that the metals and steel industry depends on construction and the automotive sector, but the latter depends on exports to the US, where the economic outlook is not entirely favorable in terms of the rate of orders either.

“For 2024, the same international organizations and analysts surveyed by Banxico estimate lower growth in the economy. This means that the outlook for the next year and a half doesn't look entirely clear for minerals and metals,” said the analyst.

Regarding the mining reform that went into force in May, Tello said as long as there is no regulation, it is possible that investors will decide to put their new projects on hold as they wait to see the details that the law has not yet defined, but investments in productive mines will continue.

• [Editor:Alakay]