Mexico Chemicals Report 2009

Industry Overview Mexico’s chemicals industry produces just 4.5% of the total output in North America and accounts for just a fraction of the global US$3.2trn world chemical output. One of the challenges facing the industry is the dominance of state-run oil company Petroleos Mexicanos. The firm has a monopoly in the oil industry, including sole control over natural gas production. ANIQ, the national chemical association, has reportedly said US$34bn needs to be spent through 2023 in order to rekindle the sector. The group says Mexico’s trade deficit could widen to US$25bn by 2023 if problems within the nation’s chemicals and petrochemicals sector are not tackled. Major players in the industry include Mexichem, BASF Mexico, Celanese Mexicana, KUO and Pochteca Materias Primas.

Business Environment Mexican legislators have approved energy reforms that will grant Pemex greater financial autonomy and will allow it to hire foreign companies to assist it in oil exploration and development. The changes, however, fall short of Mexican President Felipe Calderón's initial proposals, and it remains to be seen to what extent they will improve Mexico's business environment. The reforms aim to make service contracts more attractive to foreign companies by allowing Pemex to offer incentives such as bonuses for contractors that complete projects ahead of schedule, additional compensation for projects that are more successful than expected, and rewards to service providers that pass on technologies to Pemex.

Industry Trends And Developments Celanese stopped production of vinyl acetate monomer (VAM) at its plant in Cangrejera. Mexichem aims to spend US$1bn through 2013 acquiring chemical firms in Latin America. KUO sold its Quimir unit, which was focused on phosphates, to Mexichem. Brenntag bought BASF’s distribution centre in Queretaro. Pemex is inviting bids to expand production of aromatics at its Cangrejera complex, which will reportedly boost efficiency of the reformation of naphthas and double paraxylene output at the facility. Rohm and Haas began operations at a new US$20mn emulsion polymer and polyacrylate plant in Querataro.

Industry Forecast Like other chemicals producers around the world, Mexican players are facing unprecedented challenges as a result of the downturn, as global customer destocking is cutting deeply into demand. However, inventory levels could become depleted by Q209, which should set the foundation for a rebound. The clampdown on credit will play a key role in the recovery, as firms may run into trouble refinancing their debt. Demand for materials such as plastics is expected to grow as the Mexican economy expands. The dominant chemicals players are expected to benefit from the rapidly growing Latin American market.