15 minutes with ... Jose Antonio Gomez Urquiza.

The general director of Canacero talks about the steel industry's rocky 2000 and its hopes for the future

Year 2000 will not be fondly remembered by the nation's steel industry. The world's heavily oversupplied and shrinking steel market saw significantly slumped sales revenues across the board. If this weren't enough, the rocketing prices of local gas, one of the industry's key energetic components, has been blamed for rising costs, plant closures and cuts in personnel.

Today the nation's steel industry is hoping for better times--having reached an historic agreement with Petroleos Mexicanos (Pemex) to supply industrial gas at a fixed price over the next three years. Even so, the sluggish performance of North American markets this year may keep demand low.

Canacero is the country's steel chamber, representing almost all of the country's steel producers and workers. BUSINESS MEXICO spoke to Canacero general director Jose Antonio Gomez Urquiza to find out more about the industry's prospects for this year.

So what happened in 2000?

Last year was very difficult. It began with great expectations for growth and profits, but as the year progressed, problems began to appear. An oversupply led to a drop in price for many steel products, and in our case, the increase in natural gas prices hit us badly, both for those members that use gas as a primary material and those that use it as an energy source.

And this year?

Now that the gas prices are more certain, we can hope for better times, and as worldwide supply has fallen since the first half of 2000, we can expect an increase in prices by the second half of this year. But, I can't say whether many Mexican steel companies will register a profit in the first half of the year.

Is the same true for iron ore?

Mexico has extensive iron ore reserves, but with such high gas prices companies preferred to import sponge iron or other raw materials for their steel mills, rather than treat the mineral here. That should change this year.

How does Mexico's steel industry compare with the rest of the world?

As a producer, Mexico ranks 15th in the world and we have held that spot for the last two years. We export to more than 130 countries and bring in imports from 115 countries. Our products compare favorably in both quality and price with the rest of the world. A problem in recent times for us has been the strong (Mexican) peso (compared to the U.S. dollar). We would like to see the peso trading at around 10.20 pesos to US$1.

How can Mexico's steel industry improve?

We can't adopt isolationist policies. We have to keep up with new technologies and stay relevant in the world market. What happens in Mexico depends on the worldwide steel market. The steel industry is one of the most internationally integrated in the world. Some 40% of steel consumed in the world originates in another country than where it is being used. We must also look for new opportunities from our various free-trade agreements. We are the only country that can trade freely with both North America and the European Union, and we must take advantage of this.

Which areas of the industry need more investments?

Over the last 10 years (since Mexico's steel industry began to be privatized), the steel industry has invested almost US$5 billion in environmental improvements, technology upgrades and specialized steelmaking equipment. I think investment-wise we are doing fine.

Have Mexico's steel companies developed e-commerce services?

The steel industry in Mexico has not done much in developing e-commerce. Some individual companies have client-service sections on their websites, but that's about it. Canacero has tried to form a liaison between steel-trading e-commerce companies, such as E*Steel, and the steelmakers. Little has been done, but there is great potential here.

What about the scrap industry?

We have a very active scrap-metal industry. Mexico lacks scrap metal; we import a lot (mostly from the United States). Some important steel producers from scrap include Deacero, Acero San Luis, Tultitlan and in some products, Hylsamex. There is a consciousness to recycle the metal--we know that steel is 100% recyclable.

Mexico's auto and commercial vehicle industry is producing at near-record levels, and has expanded a great deal over the past five years. Has this brought more business for the steel industry?

Not really. The auto industry in Mexico is very protected, with concessions that no other industry in this country enjoys. It can buy its auto parts from anywhere and pay no tariffs. As a result, the companies usually buy the parts from their home countries. The protection given to the auto industry over the last 15 years by the Mexican government has hurt the domestic steel industry, and it continues to hurt us.

Does the steel industry in Mexico depend more on exports or on the domestic market?

It depends more on the domestic market. We traditionally export about 35%, and import around 15% of what we use here in Mexico. By far the most important sector in Mexico for us is construction. Other major users of our products are the packaging industry and machinery makers.

Spain's steel giant Aceralia was recently looking to invest in Mexico's Ahmsa. It had several meetings with the country's Finance Secretariat to address its fears of a lack of guarantees for investment. Is the Mexican steel industry open to foreign investment, and does it offer sufficient guarantees?

Yes. The steel market, Mexican or otherwise, is very cyclical, and requires strong, long-term investments. Because of this, it carries inherent risks. There are no favors in the Mexican steel industry, nor any extra benefits. It's the same as any around the world.

Is steel dumping and U.S. protectionism a problem for Mexico?

Disloyal trade is a problem, and on occasion the U.S. steel industry and trade authorities have protected themselves more than is necessary. But on both of these counts the disputes have been over very specific items or products. The United Steelworkers of America (the U.S. steelworkers union) is a fairly powerful group, and had very close links to the Clinton administration. I think it's too early to tell whether things will be very different with George W. Bush as president. I think the most important factor in our trade relations with the United States will be how strong the U.S. economy is (rather than internal politics). The United States is by far our most important trade partner: 65% of our steel exports go there.

How can the Mexican government create a more favorable climate for the steel industry?

If there is economic development, then that will help all sectors, including steel. Economic development usually goes hand-in-hand with stability. There is a serious housing shortage in Mexico. The government has said it wants to address that. We also ask that the government understand the steel companies' problems. We want to make use of the advantages available to us.

Dean Illot is Mexico City bureau chief for Business News Americas.