Mexico
A tale of two eagles: US and Mexico friendshoring takes flight
Mexico’s economy experienced an average GDP growth of 2% between 1994 and 2023, with an increase of 3.1% in 2023. The chemical industry also grew substantially last year. According to the Chemical Industry Association of Mexico (ANIQ), chemical production rose by 3.2% compared to 2022, reaching 20,652 t/y. Exports surged by 119.8%, climbing to 9,565 t/y from 4,393 t in 2022. Domestic consumption increased by 16.2%, and value creation grew by 5.9%, reaching US$21.4 billion. Despite these positive figures, the industry faced a trade imbalance, with the deficit rising to US$33.8 billion, up 17% from 2022.
In this context, discussions within the industry in Mexico over the three months of GBR’s research revealed mixed feelings and focused on several key themes. One prominent theme was the Mexican presidential elections.
On June 2, Mexicans went to the polls to elect their next president, and Claudia Sheinbaum assumed office on October 1, 2024. One key area of interest for the industry is how the new president-elect will address Pemex, the state-owned energy company.
Pemex has been continually subjected to political interests and has even required government intervention to manage a debt of approximately US$100 billion, now structured as bonds. This debt and a production deficit have negatively impacted the chemical industry’s production capacity. For example, Pemex reported its lowest monthly crude oil production in February, which, according to Reuters, was the lowest in 45 years.
Claudia Sheinbaum has already appointed Víctor Rodríguez Padilla as the next director of Pemex. The coming months are expected to be particularly intriguing for Pemex for two main reasons, as she stated to Bloomberg: “We need to work on two fronts. On the one hand, we must refinance the debt and ensure that this refinancing is linked to both oil production and refining, while also exploring other energy sources or new electricity generation schemes.”
For Patricio Gutiérrez, chairman of the board and CEO of Grupo Idesa, there is a sense of optimism about the new leadership: “With the recent Mexican presidential elections and the new administration’s arrival in October we expect to see positive signs of investment in this sector, which could bring substantial benefits to the country. While there are cautions, especially regarding the energy sector, I am confident that measures will be taken to improve the overall economic direction of the energy sector.”
During a meeting with ANIQ, GBR inquired with the association’s general director, Miguel Benedetto, about their collaboration with Claudia Sheinbaum’s transition team. Benedetto explained that discussions have focused on the chemical industry’s role in the energy transition, a crucial step for developing a comprehensive policy that supports renewable energy and sustainability, particularly in the context of nearshoring. Much like Gutiérrez, Benedetto showed optimism: “The upcoming administration has shown great willingness to engage with what they consider priority sectors like the chemical and petrochemical industries. They want to understand the challenges, contributions, and benefits they can provide,” he concluded.
The never-ending story of insufficient domestic feedstock from Pemex has been detrimental to the growth of Mexico’s chemical industry, preventing it from unleashing its full potential and forcing companies to depend on imports from countries like the US: “A robust Pemex is crucial for supplying raw materials to the chemical sector, and collaborating on joint projects to support its recovery is essential,” commented Stefan Lepecki, CEO at Braskem Idesa.
Braskem Idesa produces polyethylene (PE) and operates a facility running at over 80% of its capacity. Due to the shortage of domestic feedstock, the company relies on a “fast-track” and temporary solution to import ethane: “Today, 70% of global polyethylene producers rely on naphtha crackers for feedstock, whereas companies like Braskem Idesa, using ethane, maintain a considerable competitive edge. While Mexican ethane remains our primary choice, Pemex lacks the capacity to meet our requirements and supply its own complexes. Importing ethane from the US will keep us globally competitive despite the logistics cost of importing feedstock, which might initially seem a disadvantage,” explained Lepecki.
“Mexican clients are always a priority, unlike foreign suppliers who prioritize their local customers during logistical disruptions. We can deliver PP in hoppers, bulk trucks and trucks with 25 kg bags, adapting to our client's needs.”
Sebastián Díaz, Commercial Director, Indelpro
The real deal for Braskem Idesa is the completion of the Terminal Química Puerto México (TQPM), a subsidiary of Braskem Idesa, and a joint venture with Advario, a port operator. By mid-2024, TQPM’s construction was 70% complete.
The project is divided into three main components: a pier for receiving ethane shipments from Houston, supported by the construction of two state-of-the-art ships in China, two ethane storage tanks with a combined capacity of 50,000 m³, and pipelines linking the port infrastructure with the production plant, which is already 90% finished. “We are on track to commence operations in Q1 2025, a pivotal step in solidifying our ethane supply strategy. Importing feedstock from the US will also establish a certain `independence´ from the national supply currently provided by Pemex,” concluded Lepecki.
Another company facing challenges due to Pemex’s situation is INDELPRO, Mexico’s sole polypropylene (PP) producer. According to Sebastián Díaz Barriga García, managing director, INDELPRO sells around 98% of its PP within Mexico. While Mexican consumers could benefit from cheaper foreign PP, Díaz Barriga García emphasized that flexibility remains a key factor driving clients to choose them: “As a local producer, we offer our clients early reaction times and inventory management. We can obtain propylene through various means —ships, pipelines, railways, and roads—, which North American PP producers cannot because their plants are connected by pipelines to FCC units or crackers. Importing PP would require our clients to maintain a large inventory buffer, whereas it can be just a few weeks with us,” he explained.
A void to fill
Much has been written about nearshoring in the last couple of editions of this report. Bear with us, because while it remains a growing trend, still Mexico cannot take it for granted.
According to figures from the UN Conference on Trade and Development (UNCTAD), Foreign Direct Investment (FDI) in Mexico has not yet surpassed the peak reached in 2013, which was US$48.35 billion. After a decline to US$30.35 billion in 2014, FDI has been on the rise, reaching US$36.05 billion in 2023. The 2024 Investment Climate Statement report by the US Department of State indicates that the US remains Mexico’s largest source of FDI, with a stock of US$236 billion as of 2022.
Meanwhile, the Sino-American trade war is creating a void that Mexico has begun to fill. By the end of 2023, Mexico had surpassed China as the leading source of manufactured products for the US, with the sectors attracting the most FDI including automotive, aerospace, telecommunications, financial services, and electronics.
The Mexican Association of the Automotive Industry (AMIA) and the National Auto Parts Industry (INA) are forecasting a record-breaking year in 2024 for both vehicle and auto parts production, with estimates ranging between 3.9 and 4 million units, surpassing the 3.8 million units produced in 2018. “Mexico is emerging as a key player in the automotive sector’s transition to electric vehicles (EVs). This extends to the production of automotive parts and to becoming a producer of EVs, and the specialty chemicals segment can provide solutions for this transition […]Probably between 20% and 30% of our total sales are directed toward the automotive industry, but what is particularly noteworthy is the focus within Evonik on developing new products and technologies for the EV transition,” shared Martín Toscano, president of the specialty chemical producer Evonik.
While Tesla has postponed the construction of its plant in Mexico until after the US elections, Asian OEMs have been attempting to bypass US trade restrictions by establishing operations in Mexican territory, according to DAXX’s commercial director for Mexico, Jorge Hernández: “From Sonora to Tamaulipas, several maquiladora operations convert products for sale in the US. The development of the automotive industry (like EVs) and extended storage and production facilities have strengthened Asian investments. Under this strategy, Asian intermediates manufacture in northern Mexico and then benefit from trade agreements to enter the US market,” he commented.
However, Tesla’s decision to pause construction of its plant near Monterrey raises a fundamental question: What will happen after the US elections in November 2024?
When asked about the impact this might have on nearshoring dynamics, ANIQ’s general director, Benedetto, remarked that the election outcome is beyond their control. However, what is within their control is ensuring that the Mexican industry and government remain aligned: “I firmly believe that Mexico must become competitive and create the right conditions to attract nearshoring. The conditions are within our control as a country, regardless of external factors. When everyone is on the same page and working towards a common goal, achieving success becomes much simpler, and we must foster an environment that attracts foreign investment,” he concluded.
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