Chemical & Engineering News
December 15, 1997
Copyright © 1997 by the American Chemical Society

NORTH AMERICA

Mexico's Economy, Chemical Trade Still Robust

George Peaff
C&EN Northeast News Bureau

U nlike the 1997 decline of the economies in many Asian and South American nations, Mexico has enjoyed another year of robust economic growth. The troubles encountered by the various Asian and South American countries that are coupled to and abetted by the weakness of those countries' currencies has not reached Mexico.

Of course, Mexico had a self-induced devaluation of the peso in late 1994 that led to a recession in its economy. But that devaluation and the Mexican government's reforms, including the privatization of several industries, have led to an economic recovery driven by expanding trade, especially with the U.S.

While Mexico's chemical industry has joined in that revival, there is one continuing caveat. The proposed partial privatization of Mexico's petrochemical industry-which is now owned and operated by a subsidiary of the national petroleum company, Petróleos Mexicanos (Pemex)-has languished since it was proposed five years ago.

Representatives of both Mobil and the Anglo-Dutch Royal Dutch/Shell Group, speaking in October at the annual meeting of the Asociación Nacional de la Industria Química (ANIQ), the Mexican chemical manufacturers association, said they had committed investment in petrochemicals in other countries, rather than in Mexico, because of the delays and ever-changing rules governing Mexico's privatization.

Mexico's continuing 51% ownership of the complexes has been cited as a major stumbling block for companies considering possible bids on minority ownership in the nine petrochemical complexes. And as the privatization is now structured, companies must bid on the complexes in their entirety, not for just certain plants within the sites as was initially proposed.

But while Mexico's petrochemical industry struggles with its attempt to modernize and expand, the nation's chemical industry as a whole has joined in the economy's revival. Mexico reported its sixth consecutive quarter of growth in its gross domestic product (GDP) for third-quarter 1997. GDP rose 8.1% on an annualized basis in the third quarter compared with the same period in 1996. In the second quarter, Mexico's GDP grew at an 8.8% annual rate, and in the first quarter, at a 5.1% annual rate.

Mexico's chemical trade deficit with U.S. rises

Mexico chemical trade
graph

a C&EN estimates. Source: Bureau of the Census

As reported by the Department of Economic Research of Banco Nacional de Mexico (Banamex), Mexico's industrial output-which includes the mining, manufacturing, construction, and utility industries-was 8.9% higher in the first eight months of 1997 than in the first eight months of 1996. Manufacturing output, including the chemical industry, grew 9.2% in the eight-month period. According to Banamex, about half the manufacturing output growth, including chemicals, "comes from domestically oriented output." Within manufacturing, output of finished capital goods is growing fastest, followed by raw materials and consumer items, according to Banamex.

And Mexico's trade growth that began in 1996-which at first involved only exports because of the peso devaluation-continued into 1997, but at a slightly slower rate. Mexico's total exports in 1996 were $96 billion, a 21% gain from 1995. Total imports in 1996 were $89.5 billion, up 24% from 1995. For the first nine months of 1997, total exports were $80.6 billion, up 16% from the same period in 1996. Imports for the first nine months totaled $78.8 billion, up 23%.

As reported by ANIQ, Mexico's total chemical exports were nearly $4 billion in 1996, compared with $3.7 billion in 1995. Chemical imports were $5.8 billion in 1996, compared with $4.7 billion in 1995. Thus, Mexico's chemical trade deficit increased to $1.8 billion in 1996 from $1 billion in 1995. But ANIQ's statistics do not include trade in pharmaceuticals. Pharmaceutical exports may be as high as $2 billion if statistics from another group, Mexico's National Institute of Statistics, Geography & Informatics, are used.

ANIQ predicts Mexico's chemical exports-excluding pharmaceuticals-will be $3.4 billion in 1997, a nearly $600 million drop from 1996, while chemical imports will reach $6.7 billion, a $900 million gain. The growth in chemical imports will continue, says ANIQ, because Pemex cannot supply enough basic petrochemicals to meet Mexican demand. Nearly 17% of the chemicals imported by Mexico are the same petrochemicals produced by Pemex.

There has been a discrepancy in economic statistics between the three partners in the North American Free Trade Agreement-the U.S., Canada, and Mexico-but this may be coming to an end. In August 1994, the three countries reached agreement to standardize economic data, replacing each country's industry classification system with the North American Industry Classification System (NAICS). The U.S. and Canada have adopted NAICS for 1997 statistics, while Mexico will inaugurate NAICS for 1998 statistics.



PRODUCTION IN MEXICO EXPANDED FOR MOST CHEMICALS




At this time, a more accurate measure of where Mexico's trade in chemicals may be headed can be found in its chemical trade with the U.S. Shipments to the U.S. represent about 50% of Mexico's chemical exports, while 65% of Mexico's chemical imports originate from the U.S.

In the first nine months of 1997, U.S. chemical exports to Mexico including pharmaceuticals were $4.62 billion, a 22% jump from the same period in 1996. Mexico's chemical exports to the U.S. were $1.17 billion, a 13% rise. Extrapolated to full-year 1997, U.S. chemical exports to Mexico will reach $6.3 billion, a nearly 18% increase from 1996. Mexico's chemical exports to the U.S. will reach $1.5 billion, up 10% from 1996. That translates to a projected 1997 Mexican chemical trade deficit with the U.S. of $4.8 billion, up nearly 26% from 1996. That follows a 28% leap in its chemical trade deficit with U.S. in 1996.

Mexico's lack of investment in its petrochemical sector is borne out in its trade with the U.S. In the first nine months of 1997, U.S. exports of organic chemicals to Mexico totaled $1.09 billion, 25% more than in the same period in 1996.

Mexico's exports of organic chemicals into the U.S. totaled $287 million for the first nine months, an 11% gain from the same period in 1996. All other U.S. exports of chemical products into Mexico have increased in the 1997 period, except for fertilizers. All other Mexican exports of chemical products into the U.S. have also grown in 1997, with the exception, again, of fertilizers.

In 1997, according to ANIQ, the fastest growing segments in the industry were adhesives, fibers, rubber, pigments, and colorings. In the third quarter of 1997, production in these segments was up more than 15% from the same period in 1996. ANIQ also says the Mexican chemical industry's capacity utilization rate was at 74.9% in third-quarter 1997 compared with 71.5% in third-quarter 1996.

As it is with Canada, the continued growth of Mexico's overall economy and chemical industry is tied into the continued growth of the U.S. economy. Banamex places Mexico's economic growth based on GDP at 5.1% in 1996 and at an estimated 6.5% for 1997 and 5.7% for 1998. The drop in Mexico's GDP growth in 1998 is based on an anticipated slowdown in the U.S. economy in 1998.

However, as pointed out by Banamex, the recovery of Mexico's domestic market is keeping products home that in the past would be exported. And because of the turmoil in the economies of Asian and some Latin American countries, Banamex expects Mexico's healthy economic situation to attract investments away from some of these other troubled nations.


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