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Mexico: An Alternate Lucrative Haven to Outpace China for US Castings Demand

Espresso-live Speakers
by Suriya Anjumohan , Senior Research Analyst
19 March 2014

1. Introduction: The global metal casting industry is expected to reach 105 million metric tons by production over the period 2014-15. The industry was completely driven by the recovery of end use industries such as automotive which contributes 40% of the global castings consumption. North American automotive industry is expected to surge in the production of automotive vehicles. In the last decade, China has essentially become the default option for companies which desire to outsource metal castings production in order to lower their costs. In recent times, China is losing most of its advantage as a low cost country for consumers based in the US for the procurement of metal castings. Hence there exists necessity for the US consumers to look for alternative markets to meet their metal castings demand at a low cost. 2. Main: At present Mexican casting prices are now near parity with China castings prices. Shorter lead times and closer proximity to the US with NAFTA work strongly in Mexico?s favor. China?s labor rate was about one-quarter to Mexico?s labor rate in early 2000. In 2014, the China?s labor rate is expected to be slightly higher than the Mexico?s labor rate. China is likely to raise electricity prices due to increasing cost of coal, but with Mexico the natural gas prices are tied to those of the US, which are low because of market surplus. Besides, the scenario to the basic cost factors there exists potential opportunities with Mexico metal casting industry to become a low cost country. Issues on other procurement related factors to metal casting with Mexico and its advantages against China have been dealt in detail. 3. Recommendation: From the procurement standpoint, for the US metal castings consumers it is recommended to procure metal castings from Mexico, as China is losing its advantage with increasing labor wages, currency appreciation, logistics cost and hidden cost such as cost associated with the lead time, tooling failure and quality. For short term, the total cost of ownership with the US favors Mexico as it provides about 5 ? 6% profitable scenario to the metal castings end use industry players. The same is expected to reach 10 ? 12% in long term scenario.

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