DeAcero’s Mexican Revolution

Not content to simply be the biggest wire product manufacturer in Mexico, DeAcero has set its sights on becoming a competitive player in the international market as well. 

By Kent Kiser

Kent Kiser is an associate editor of Scrap Processing and Recycling.

These are exciting times for Mexico and, hence, for Mexican companies. Since 1982, when it virtually went bankrupt, the country has risen like the mythical phoenix from the ashes to become a financially solid, economically open country.

This transformation--which national and international experts frequently credit to outgoing President Carlos Salinas de Gortari--has heralded Mexico's industrial awakening, and it has created unprecedented opportunities for Mexican firms such as DeAcero S.A. de C.V., a steelmaker and wire product manufacturer headquartered in Monterrey. To Raul M. Gutierrez, DeAcero's managing director, the future is indeed bright, thanks in part to the North American Free Trade Agreement (NAFTA), and his optimism is unbridled as he asserts, "The market opportunities are going to be extremely promising for us."

Building the Business

Cesar M. Gutierrez, Raul's father, founded DeAcero in 1953 in a small building on Hidalgo Street in downtown Monterrey, Mexico's third-largest city and the capital of the state of Nuevo Leon. Monterrey, which has been called "the Pittsburgh of Mexico," was--and is--an appropriate home for DeAcero since it serves as Mexico's industrial center. The city, in fact, produces roughly a third of the country's manufactured goods, with particular strength in the brewing, cement, glass, and--of course--steel industries.

DeAcero--which means "from steel" in Spanish--began life as a fabricator of wire products, making items such as coat hangers, barbed wire, and chain-link fence from purchased wire. In 1980, however, the company began to integrate backward, first by installing a rolling mill, which enabled it to make its own wire from billets, then by building a minimill in 1986. There were two reasons behind these moves: Cesar Gutierrez had always dreamed of making his own steel, and the company wanted to have more control over its raw materials and supplies in order to become more competitive. "We weren't served very we by our suppliers at that time," Raul explains. "Mexico had a completely protected economy, so we had to buy what was available here. We didn't have many choices, and that prompted us to build our own steel mill."

DeAcero's mill is located in Saltillo in the state of Coahuila, about an hour's drive southwest of Monterrey through khaki-colored terrain dotted with cacti, desert palms, and an occasional donkey, and defined by the steep face of the Sierra Madre Oriental range. Aside from being set in this unmistakably Mexican scenery, the facility looks like any other world-class minimill, with the latest pollution-control equipment and operations as immaculate as any industrial facility could hope for. With a production capacity of 350,000 tons a year, DeAcero's minimill accounts for about 3.9 percent of Mexico's 9-million-ton annual output. Yet, while the company isn't the biggest steelmaker in the country, it is Mexico's biggest wire company, with annual sales in the neighborhood of $200 million. "We think of ourselves more as a wire company than a steel company," Raul says.

The firm makes its wire products at plants in Monterrey, Saltillo--where it shares an 81.5-acre site with the firm's minimill and rolling mill--and Puebla, the capital of the state of Puebla, which lies southeast of Mexico City. At these facilities, the firm stretches, or "draws," the wire from its minimill to different sizes, galvanizes most of it, then weaves, bends, twists, welds, and cuts it to make more than 30 products, including barbed wire, chain-link fence, field fence, poultry fence, construction mesh, nails, livestock flooring, and industrial wire. The firm also perforates and "expands" flat-rolled sheet steel into mesh.

The construction market absorbs most of DeAcero's products, followed by the agricultural and industrial sectors, as well as other miscellaneous markets. The firm markets its products through its sales offices throughout Mexico, and it boasts an extensive distribution network that serves more than 2,000 customers. "We go to every little town in Mexico," Raul says. Currently, DeAcero sells about 90 percent of its products in Mexico and exports the remaining 10 percent to the United States, Canada, Central America, and the Caribbean.

Being 'Scrap Smart'

Wire steel, which must be ductile enough to be drawn, is considered a higher-end product than rebar, so quality is that much more important. As a result, DeAcero takes its furnace feedstock seriously, noting that the quality and cost of the scrap it buys has a profound effect on its ability to make quality products and compete internationally. "What's most critical for us is that scrap is clean and consistent in terms of the amount of residual elements it contains," says Rodolfo Fernandez, DeAcero's manager of raw materials procurement. Scrap of a consistent quality saves time--and, thus, money--and prevents problems during the melting stage. The firm also seeks dense scrap because the denser it is, the fewer times scrap must be charged into the furnace.

With this much at stake, it's no wonder DeAcero goes to great lengths to be "scrap smart" and ensure it's making the best buys. For one thing, the company plans its purchases carefully, holding monthly management meetings to decide how much and which grades of scrap to buy and within what price parameters. "When we buy," Rodolfo explains, "we consider the total cost of the scrap-its cost per ton, yield, melting time, energy usage, and refractory and electrode consumption. That helps us know the value of each grade of scrap."

DeAcero manages its scrap purchases at home through its staff specialists in Monterrey and Saltillo, but it handles its U.S. buys through Phillip A. Aronoff, a 27-year scrap industry veteran stationed strategically in Houston. This arrangement, forged in 1992, has given DeAcero better control of its U.S. scrap buys, not to mention the benefit of Phil’s knowledge of the U.S. market and solid relationships with American processors, who supply 30 to 50 percent of the company’s scrap.

While DeAcero certainly expects top-quality material and service from its scrap suppliers, it also tries to serve them. “One of our goals is to be a regular, dependable outlet for our suppliers month in and month out,” Phil says. The firm also makes sure to pay its suppliers “right on time, all the time,” Rodolfo notes, adding, “We don’t miss a payment for any reason.” And for its Mexican suppliers, who deliver material primarily by truck, DeAcero makes it a point to unload material quickly so the suppliers’ trucks can get back on the road to service other accounts.

In addition, DeAcero looks out for its suppliers by not competing with them for scrap. For instance, even though the firm has a 4,000-horsepower Newell shredder at its minimill, “we intentionally don’t do a lot with it,” Rodolfo says, “because we don’t want to draw material away from our suppliers.” The company, in fact, had no intention of operating a shredder in the first place, but it acquired the machine in a settlement with a financially troubled supplier. Aside from running the shredder part-time to process No. 2 material, DeAcero limits its scrap preparation to torch-cutting railcars and oversized as well as heavy melting scrap.

The NAFTA Promise

Aside from remaining profitable, one of DeAcero’s corporate goals is to become as competitive as possible, and this goal has become even more important in the wake of passage of NAFTA, referred to as Tratado de Libre Comercio in Mexico.

For Mexican companies such as DeAcero, NAFTA marks the end of Mexico’s protected economy and--they hope--the start of an industrial boom era, a transition that is prompting many firms to strive to become internationally, not just domestically, competitive. “When we were in a protected economy,” Raul says, “we didn’t care so much about being competitive or buying wisely because all we had to do was raise prices. Now, we have a completely open economy and we have to be cost-competitive to keep up with international prices. We have to purchase correctly as well as sell correctly.”

Interestingly, the company supports NAFTA even though the agreement will have no effect on its U.S. scrap purchases--which have been duty-free all along--and even though the accord eliminates a 10-percent duty that protects the Mexican company from wire rod imports. DeAcero will forfeit that advantage in exchange for other benefits, Raul says, such as greater access to U.S. products and services, steady growth of the Mexican economy, and increased foreign investment in Mexico. “While we’re certainly giving something up,” he explains, “we’ll gain more because the market opportunities are going to be very good for us. Any company that is competitive is going to have a lot of opportunities.”

On a Competitive Streak

But what does it take to be competitive enough to take advantage of these opportunities? For a manufacturer like DeAcero, it means being as efficient as possible, which requires continuous investment in capital improvements and product development. “Our philosophy is to be updating our processes all the time and modernizing our equipment to stay competitive,” Rodolfo says. “We compare ourselves all the time to the benchmarks of other internationally competitive companies when it comes to productivity.” Such investments in efficiency have worked wonders, enabling the firm to trim its work force by 450 employees while increasing production.

Another key to DeAcero’s competitiveness is controlling costs, especially scrap costs since scrap is the biggest cost component of making steel in a minimill. This has become even more critical due to the high ferrous scrap prices in the past year, which have made it more attractive for minimills to explore scrap substitutes. Thus, in February, DeAcero began conducting test-melts using pig iron to see if it can produce a cleaner, easier melt at a reasonable price.

Whether using scrap or its substitutes, quality assurance is a crucial factor in being competitive. To this end, DeAcero's minimill takes no fewer than six 50-gram samples during each melting and casting stage to ensure that its steel meets the necessary specifications for the firm's wire products. Because of this devotion to quality, Rodolfo asserts, "We can hold our quality up against anyone in the world.”

The firm also strives to be competitive by continuously developing new markets, rather than simply relying on its existing product lines. "We're a company that puts a lot of new products into the market," Raul says, noting that the company was the first to introduce many new wire products into the Mexican market. "We've seen that our customers are more receptive to new products because they want to be more competitive themselves," Raul observes.

Being competitive also means employing the smartest, most productive employees, both in the plant and in the office. Most of the firm's managers, for instance, are fluent in English and Spanish, with many of them educated at top schools in Mexico, the United States, and overseas. Take Raul, who earned a degree in industrial engineering from Purdue University, or Rodolfo, who received a chemical engineering degree from Monterrey Institute of Technology, an MBA from the University of Texas at Austin, and executive training at the American Graduate School of International Management in Glendale, Ariz.

DeAcero manages to attract and retain top employees by offering equitable wages and benefits that are "very similar to the United States," Raul says. These include profit sharing--which is required by law in Mexico--health insurance, paid vacation, bonuses for long-term employees, on-the-job training ("most of our people have been 'made' right here " Raul remarks), and company cars for managers. "We strive to always be better than the average," Raul says. "We also try to give our employees opportunity as well as challenge in their jobs." Thanks to these and other efforts, DeAcero boasts low employee turnover and a positive, strike-free relationship with its unionized work force, with which it negotiates salary adjustments annually and contract revisions biennially.

Despite the progress DeAcero has made on the road to competitiveness, Raul sees the 's efforts so far as just the beginning. “There’s still a lot of room for improvement, especially in the melt shop and rolling mill," he says. "We have to change our thinking in areas such as energy savings, attention to detail, and continuous improvement." And all this talk about competitiveness isn't just idle chatter--to Raul, it’s a matter of life and death for his company. “If you’re not competitive, you’re going to have a lot of problems,” he asserts. “Many companies will go broke because they won’t be able to adapt and be cost-competitive.”

Into the Future

For DeAcero, as for Mexico, the future promises to be full of change and growth. Among its immediate goals, the firm wants to increase the capacity of its minimill by 50,000 tons a year. Rather than adding new equipment, the mill will accomplish this by introducing more oxygen and coal into the furnace, which will enable it to melt more. DeAcero also has ambitious expansion plans that include not only building new wire product manufacturing plants around Mexico but also a new melt shop and rolling mill in Central or South Mexico.

The goal behind this growth isn't simply to become bigger. "I don't want the company to grow just to be able to say we're big," Raul says. "Being big isn't the answer to everything. The name of the game is to continue to be profitable. That's our goal.”

Raul is also quick to note that DeAcero has no desire to diversify beyond its current niches. Instead, the company plans to continue building on the foundation it has created over the last 41 years. “We don’t try to make money on one business deal of in one given moment,” he says. “We look at our business in terms of long-term, not short-term, relationships.”

And in the long term, as Mexico progresses in its industrial revolution, Raul and DeAcero’s other executives intend to stay focused on one goal: “We’re the best here in Mexico,” he states, “and we’d like to compare to the best in the world.” •