High metal prices drive 3 quarters of growth in Mexico's mining sector

Non-oil mining in Mexico saw three consecutive quarters of growth through June, driven by the upward trend in prices for gold, silver, copper and zinc, among others, the central bank (Banxico) said in its quarterly report on regional economies.

In the report, prepared based on surveys of company executives from across the country and official data, Banxico indicated that among the common factors that boosted non-oil mining in all regions between April and June, “the executives surveyed identified the increase in international metal prices as the main factor.”

“This increase was partly attributed to restrictions imposed on Russian metals on the United States and United Kingdom exchanges, as well as expectations of a recovery in global manufacturing activity,” the central bank said. "In addition, the sources consulted indicated that the increase in Chinese demand for metals for industrial use was another factor that explained the increase in prices of goods such as copper, zinc and lead."

Banxico said the rise in precious metal prices was associated with a diversification of central bank reserves, geopolitical tensions in various parts of the world, as well as the expectation of a global reduction in interest rates, which encouraged the use of these metals as an investment refuge.

Executives from the north highlighted high demand for stone minerals, particularly sand and gravel, used for residential and commercial construction in Baja California and Nuevo León states, which they associated with the relocation of supply chains, or nearshoring.

In the center-north, fluorite producers have seen an increase in their profits due to the rise in the price of this mineral, which has gained relevance due to its multiple applications in electrification, batteries and refrigeration.

The center saw investment in new technologies to improve exploration, which executives anticipate will be reflected in higher production volumes. Demand for gravel and sand for construction registered an increase due to building offices, industrial warehouses and warehouses in industrial zones in Guanajuato, Querétaro and Hidalgo, mainly by companies that are expanding or relocating in those states.

Reforms cause uncertainty

Among the limiting factors for metallic and non-metallic mining, respondents from all regions emphasized an increase in the cost of transporting goods and electricity, as well as the effect of the accumulated appreciation of the peso against the dollar that was observed until the beginning of the second quarter and which moderated in June, after the general elections.

The report highlighted that executives “continued to mention the uncertainty generated by the reform of the legal framework in the sector, which, in their opinion, continues to limit investment, mainly due to the delay in granting extraction permits.”

In mid-August, the house of representatives' constitutional committee approved the executive's proposal to ban open-pit mining. The proposal was initially presented in February by President Andrés Manuel López Obrador as part of a package of 20 constitutional and legal reforms, also including the recently approved reform to the judiciary, which is only awaiting approval by congress to be published.

Specifically in the center, the sources consulted commented that several projects were postponed due to the uncertainty generated by the electoral process in June and the policies in the sector.