A nation with vast potential requires more support from the State
Image courtesy of Evonik
The paradox of Mexico’s petrochemical and chemical industry is that its potential has arguably been elevated while the country’s government has taken steps to actively weaken it. Tensions between the US and China have heightened, symbolized by Nancy Pelosi’s visit to Taiwan in August 2022; freight rates from Asia remain high; and trade between Russia and the majority of Western nations has ground to a halt. Mexico has the idle petrochemical capacity to fill this void, an ideal location to supply both North and South America, and a young, skilled workforce. However, of all the major Latam markets covered for this report, the consensus of frustration with the government was most palpable in Mexico.
Energy sovereignty has been high on the agenda for the AMLO administration, headlined by a proposed constitutional reform to give more power to Mexico’s Federal Electricity Commission (CFE). The bill was rejected by Congress in April 2022, but remains a priority for a government that has been unwilling to incentivize private investments. Limiting the supply of privately generated electricity has alarmed the country’s industrial base, and from a chemical perspective, the failure to modernize the petrochemical facilities of State-run energy giant, Pemex, has resulted in a scarcity of domestically produced raw materials that negatively impacts competitiveness.
“In the global chemical sector, 60% of the costs of production represent either feedstock or electricity, which underlines the importance of being competitive in these areas,” noted Miguel Benedetto, director general of the National Chemical Industry Association of Mexico (ANIQ), who revealed that, after the government’s decision in April, ANIQ conducted a survey among its members which demonstrated that 75% of the chemical companies established in Mexico can produce their own electricity, or they have a private entity as a supplier, so only 25% of the industry demand for electricity is supplied from the State.
Discussing the potential damage the proposed electricity reform could cause, Benedetto commented that if it were to succeed, this would require that 75% of chemical companies in Mexico switch from their own or private production to CFE supply. “This would have two impacts – first of all, an estimated 3 billion pesos additional cost, which is a substantial amount; and secondly, we do not have the guarantee that the investments needed from CFE in order to support the growth of the industry would be made,” he said, commenting that ANIQ has shared these concerns with the Ministry of Energy and the Ministry of the Economy.
Martín Toscano, president of Evonik Industries Mexico, underlined the importance of establishing more meaningful dialogue with Mexican authorities to adopt a common agenda and foster a more competitive chemical industry with the necessary raw materials and energy supply to keep pace with market growth. “It is important for authorities to realize the relevance of the chemical industry as a key driver of the economy, especially for exports,” he stated, warning that if the current situation does not change it could represent an opportunity lost for Mexico considering the country’s role in the China Plus One discussion in the US.
“The Pemex situation has improved, but companies cannot depend solely on Pemex to supply their plants. The market is certainly there: PP demand has been growing at 6%-8% annually. We are expectant of the new refinery in Dos Bocas – if Pemex produces more raw materials, we could have more flexibility.”
Alejandro Alanís, Commercial Director, Indelpro
Abraham Klip Moshinsky, director general of Unigel Mexico, voiced his concern about the complaints raised by the US and Canada surrounding Mexico’s compliance with the USMCA free-trade agreement. “If foreign companies see that Mexico is not respecting what they have signed and committed to, why would they consider investing more in the country?” questioned Moshinsky, stating that he hopes the government will react and change its path.
But damage to investor confidence will be difficult to restore anytime soon. “Private and foreign investment into the energy sector is currently being discouraged by the government as it intends to keep control, but this can be detrimental to the development of the hydrocarbons and green energies necessary for a more sustainable future,” said Moshinsky.
Despite their worries over the direction of government policy, Benedetto, Toscano and Moshinsky all affirmed that the current global context and regionalization of supply chains present unique opportunities for Mexico’s chemical sector. The extent to which this will be capitalized upon remains to be seen, but Braskem Idesa’s US$400 million investment into the Puerto Mexico Chemical Terminal in Veracruz, which is expected to start operations in the second half of 2024, suggests a path forward for the industry.
A landmark petrochemical investment
In 2021, Braskem Idesa reached an agreement with Pemex to review the commercial terms of its contract and establish conditions for Braskem Idesa to implement the Puerto Mexico Chemical Terminal – a landmark project that represents the largest current petrochemical investment in Latin America.
“This agreement gives us the support of Pemex, Interoceanic Corridor of the Tehuantepec Isthmus (CIIT), and the port authorities to progress this investment, including the concession of the right of way in lands that belong to Pemex,” elaborated Stefan Lepecki, CEO of Braskem Idesa, who explained that by obtaining the concession, Braskem Idsea is allowed to implement its pier, and is currently in the process of buying the land from CITT and the port authority, as it is an ideal location.
“We have strengthened our relationship with Pemex and the government and, importantly, we will create an alternative to Pemex for ethane supply, which will provide more feedstock for Pemex to produce their petrochemicals to supply the industry in Mexico,” stated Lepecki, describing the project as a win-win-win situation for Braskem Idesa, Pemex, and the Mexican petrochemical industry.
Patricio Gutiérrez, chairman of the board and CEO at Grupo Idesa, remarked that, once this new terminal is up and running, it will allow the industry to start making proposals to Pemex to try to optimize its existing assets and so operate at a higher capacity: “There might be options for companies to invest in certain assets together with Pemex and increase the production of different products that Mexico needs, such as ethylene oxide, to mention one example.”
“Agricultural production needs support to succeed. Crops need protection from pests, diseases and weeds [...] In terms of sustainability, we have to look for the best technologies with the lowest chemical load – an optimized handling of chemical products with organic and biological products.”
Javier Valdés, Managing Director, Syngenta Mexico
Discussing how the relationship between Pemex and the Mexican petrochemical industry has evolved, Alejandro Alanís, commercial director at Indelpro, a joint venture between Mexico’s largest private petrochemical group, Alpek, and LyondellBasell, observed: “We are expectant of the new refinery being built in Dos Bocas, and if Pemex improves its operation and produces more raw materials, we could have more flexibility,” said Alanís.
Although a stronger Pemex would undoubtedly benefit the Mexican chemical sector, its lack of investment into petrochemical production has created opportunities for vertically integrated distributors and traders to supply Mexico with the raw materials it needs.
N. Adriana Ramírez Millán, chemical sales director at HELM de México, revealed how seven years ago Pemex had a change of strategy regarding its production, meaning Mexico would need more materials such as styrene, and amines like glycol – for which the country’s vast automotive industry had been particularly dependent on Pemex. “When Pemex decided to ramp down that production, we saw this opportunity, not only for the automotive industry, but also for many other applications like the formulation of some polyurethanes,” detailed Ramírez, mentioning that it made sense not only from the demand in Mexico, but also because glycols is one of the largest global products for HELM and the company has very strong alliances with many producers around the world.