Steel Mills
Corruption Charges Rock Mexican Steel Producer AHMSA
Written by Sandy Williams
May 30, 2019
The chairman of Mexican steel producer Altos Hornos de Mexico SAB was arrested on Tuesday in an anti-corruption probe, resulting in the freezing of AHMSA accounts and a possible disruption to steel production in Mexico.
The investigation involves the sale by AHMSA of an idled fertilizer plant in 2014, allegedly worth $50 million, to oil company PEMEX for $475 million. Alonso Ancira, chairman of AHMSA, allegedly paid former Pemex CEO Emilio Lozoya $3.7 million in bribes to secure the deal using a shell company set up by Brazilian construction firm Odebrecht. Lozoya was also arrested and charged with tax-fraud and bribery.
The investigation is part of a crackdown on corruption by the new president of Mexico, Andrés Manuel López Obrador.
A spokesman for AHMSA denied any wrongdoing and said that the freezing of the company’s accounts by the Financial Intelligence Unit was a total surprise. “It’s an unprecedented act – arbitrary and a violation of all rights,” said AHMSA in a statement. “The UIF, whose purpose is the prevention and combat of crimes of operations with resources of illicit origin, is obstructing the operational continuity of AHMSA, harming its shareholders, more than 20,000 workers and thousands of suppliers, customers and third parties that make up the vast industrial chain.”
The AHMSA accounts were frozen on May 27, preventing payment to vendors and transportation carriers and causing delays in delivery of steel to customers. Sources tell Steel Market Update that companies in the region are evaluating alternative sources for material should the investigation cause any prolonged disruption to AHMSA operations.
The AHMSA accounts were unfrozen on Tuesday night to keep the facilities operating and to pay employees and vendors.
The Finance Ministry said the UIF acted “in accordance with the law” and did not intend to harm workers, shareholders or suppliers of AHMSA.
The government’s financial crimes chief, Santiago Nieto, wrote on Twitter, “The Mexican government’s policy is zero tolerance for corruption and impunity.”
The scandal comes at a particularly inopportune time for AHMSA. Just last week the company announced it had secured $575 million in funding from Cargill Financial Services International to pay outstanding debt and ramp up production now that U.S. steel tariffs have been lifted on Mexico. AHMSA also planned to invest $300 million in its coking plant to make the company self-sufficient for its coke requirements.
The company reported $300 million in lost revenue during the year-long period the U.S. Section 232 tariffs were in place and was forced to cut production by 100,000 metric tons. AHMSA hoped to be back at pre-tariff production levels within three months.
Market Implications
Mexican hot rolled coil and plate in coil increased by $30 per metric ton last week and mills are looking to increase prices by another $26 per MT this week. Cold rolled coil was expected to see similar price increases. Sources say a maintenance shutdown at another major Mexican mill in June will result in a short-term deficit of 100,000 MT of HRC and value-added steel.
Said one Mexican steel industry source, “Please remember that the main steel distributors in Mexico depend in a large part on AHMSA and their good pricing. We believe this will have an immediate effect on the Mexico steel price, until the AHMSA issue is solved.”
Sandy Williams
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