MEXICAN INDUSTRY IMPROVED, BUT NOT HEALED

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MEXICO CITY — The state of Mexico's plastics processing industry is improving rapidly as the year's first quarter ended, but 60 percent of the country's estimated 2,500 processors remain laden with debt and owing as much as $5 bil lion combined.

The industry now is using 60 percent of production capacity, up from 50 percent in 1996, as more firms lease their capacity to companies from the United States or Europe, said Rafael Blanco Vargas, president of Instit uto Mexicano del Pl stico Industrial.

IMPI is a privately owned consulting and training company, known as keeper of the Mexican plastics industry's most-reliable statistics. Based in Mexico City, it surveys its member companies quar terly, including their financial situation and debt load.

``In 1996, only 20 percent of the processors showed healthy finances,'' Blanco said in an interview April 30.

From 1995, the first year after Mexico's shock peso devaluation a nd resulting economic crisis, to 1996, ``the situation has greatly improved, but even more so from 1996 to the first quarter of 1997, when 40 percent of the processors were defined as healthy.''

Blanco attributes the improvement pri marily to the fact that many firms restructured their debt, opting for more favorable terms over longer periods. The downside to those actions has been that the total amount now owed by Mexican plastics processors has jumped to an estimated $5 billion, from $4 billion in 1996.

The industry's first-quarter results also flash a warning sign, since 500 of Mexico's smallest processors, or roughly 20 percent of the industry, are in danger of closing permanently, Blanco said. IMPI defines these ``microcompanies'' as having one to 15 employees and annual sales of less than 1.5 million pesos — or roughly $190,000.

There are no specific programs to aid these firms, Blanco said. But he stressed that loans are being restructured and the industry is coming back to life.

``In the last two months, the increase of imports in manufactured plastics goods has stabilized,'' he said. ``National sales are higher, since imports in the first few months of 1997 are the same as they were in 1996, a great improvement when imports have been increasing 20 percent annually for several years.''

The value of finished plastic product imports skyrocketed from $200 million in 1990 to $1.5 billion in 1996, according to IMPI data. This does not include imported goods containing plastic parts. About 78 percent of Mexico's imported plastic goods come from the United States, followed by Germany with 3 percent. Imports from China and other Asian countries also are growing rapidly.

Exports of some Mexican-made plastic products, meanwhile, declined. Blanco said film and laminates exports, for example, fell by as much as 15 percent duri ng the economic crisis. Other products, like tubing, automotive parts, and buckets, have maintained steady export levels.

On March 13, IMPI organized the first seminar to focus exclusively on the plastics processing community's problems and challenges, with polymer suppliers invited only as guests. The seminar drew more than 700 representatives to the Mexico City auditorium of Canacintra, the National Manufacturing Industry Council.

The seminar's goals were to present the current situation of the industry, and offer the processors tools such as the strategies used by three successful companies — Grupo Rotoplas and Plastifin SA de CV, both in Mexico City, and Carton Plast SA de CV in Xa lostoc, just outside Mexico City. Some of the Mexican plastics industry's problems are traditional, such as its propensity to buy used processing equipment, which in turn contributes to low capacity-utilization rates. IMPI estimates that of the country's installed plastics processing production capacity of slightly more than 11 million pounds per year, Mexican processors consumed about 4.85 million pounds of material in 1996, up 7.3 percent from the 4.52 million pounds consumed in 1995. The figures reflect domestic production plus imports, minus exports.

In the recent economic crisis, the different types of processors themselves have shown varying results.

While some extrusion and injection molding markets have been hard hit, blow molding has shown important growth, primarily in advanced technology for PET bottles. Other processes like calendering and rotational molding appear stable and offer growth opportunities, according to IMPI data.

Gustavo M. Saaverda, a representative of Secofi, Mexico's Trade Ministry, told seminar attendees that just after the 1994 signing of the North American Free Trade Agreement, an industry program was set up for Mexico's plastics processors to invest $2.5 billion to modernize production. Roughly half that, or $1.3 billion, has been invested in the past three years.

Blanco also noted that market conditions are not made any easier by vola tile raw materials prices, which, within six-month periods, have swung wildly, sometimes increasing 30 percent, only then to drop by 20 percent.

Blanco added that the institute is trying to find solutions to problems common in Mexican industry, such as many workers having only a high-school-level education and, specifically, deficiencies in knowledge about plastics. For four years, IMPI has offered an eight-month diploma program for management that provides a plastics industry overview. More than 80 have graduated, he said.

With the aim of investigating new technology, the institute is taking 30 Mexican plastics industry representatives to NPE 1997 in Chicago in mid-June, and later this year to trade shows in Italy, China and Israel. He expects another 3,000 Mexican plastics industry representatives to go to NPE on their own.

But Blanco noted that since the economic crisis, many Mexican firms lack the credit to buy new equipment or modernize.

``We hope participants in the Mexican delegation to NPE can use the occasion to increase contact with industry officials from the United States, Canada and elsewhere, to promote using Mexico as a entry point for access to the greater NAFTA market,'' he said.

Blanco also believes attitude is a key factor contributing to the woes of destitute processors. Too many are stuck in the rut of following their traditional style of business.

``Only big companies — and here I mean big-thinking companies and not necessarily big in size — that use concepts like buying good equipment, or associating with logical associates in the U.S., Canada and Germany, will survive.''

On the macro-economic level, Blanco added that ``there is a lack of vision.'' The plastics industry must aim to export more value-added products, such as finished manufactured goods, while the country should export less petroleum.

The planned investment in and development of the country's petrochemical plants as they are partially privatized will aid in reaching that goal, he said.