MEXICO CITY - Hundreds of small Mexican plastics processors face imminent closure in the aftermath of the country's jolting 40 percent peso devaluation, according to leading plastics industry sources. The currency crisis is a knock-out blow for many firms already staggering under the burden of a drastic resin shortage with resulting high prices, and of crippling local interest rates. Companies now face huge new price increases on equipment and raw materials, and even higher interest rates and dollar debts.
``Thirty percent of [local processors] are going to go bankrupt. These people just don't have the money to pay,'' said Sergio Villarreal, president of the 380-firm plastics section of CAINTRA, the manufacturing industry chamber for the region around Monterrey.
Almost three-quarters of CAINTRA's member firms are small.
Nationally, many processors, fighting desperately to regain market share in a depressed home market, last year signed dollar deals to upgrade their plants with imported machinery. Now they are trapped between dollar debts and costly credit.
``The reality is that the plastics industry in Mexico is outof the business totally. [Many processors] don't have technology, they don't have quality and they don't have experience in the international market and, right now, they don't have money,'' said an angry Sergio Sosa Bravo of Distribuidora Lube SA de CV in Mexico City, which supplies Negri Bossi's Italian injection molding presses to Mexico.
Problems for processors are being exacerbated by some commodity resin distributors switching to doing business in U.S. dollars instead of pesos. Those suppliers, some of whom were badly burned by devaluation, must pay for imports in dollars.
Even Mexico's state oil giant Petroleos Mexicanos (Pemex) raised resin prices by more than 40 percent during the first week of the year. Major private producers followed suit, reflecting the devaluation with higher quotes in dollars, said Jose Antonio de Leon, commercial manager for top local resin distributor M.A. Hanna de Mexico SA de CV of Mexico City.
The feeling of real optimism in the industry at the start of the new presidency of Ernesto Zedillo has been replaced in many quarters by confusion and despair. Plastics industry prospects for 1995 now look grim, with little or no overall growth for at least the first six months.
Early reactions in the industry to the Mexican crisis ranged from shock and disbelief to gritty determination to see the problems through. There is widespread lack of confidence in the new government's handling of the affair and fear that its economic rescue plan is inadequate.
``Everybody's shocked by the devaluation and we don't know what is going to happen,'' said Italo Tajer, president of Advanced Profiles SA de CV, a rigid PVC blind and profile producer owned by Canada's Plastibec Ltd., with a plant at Altamira, Mexico.
``The important thing now is that we need to have very clear rules of the game. I don't feel anything precise came out of the government announcements. It was left too much open ... there is no clarity about the plan,'' said Tajer, who is immediate past president of the Mexican processors' association Anipac.
Current Anipac President Rafael Vidales Mendez agreed the emergency package is short on specifics, making it difficult to assess the likely effects. But he stressed that, since 90 percent of Mexico's plastic resins are imported, processors could not be expected to freeze their prices.
Vidales warned that if processors tried to raise their prices too high they would quickly price themselves out of the shrinking domestic market. Even so, he expects local firms to become more competitive in the face of costlier imports. He also believes exporters will benefit from the devaluation. He urged the government to try to keep interest rates under control so processors can afford financing.
A recovery plan, agreed to by Zedillo and Mexican labor, business and peasant leaders, was presented Jan. 3. It aims to stabilize the peso, recover foreign confidence, control inflation and ease the impact on consumers and workers.
The plan calls for ``sacrifice'' from all quarters, and requires:
Business to limit price rises - apart from those for imports.
Labor to accept a maximum 7 percent wage rise in 1995.
State industry to limit prices.
Government to curb spending.
The plan also calls for a boost in new privatization, including perhaps a sell-off of the power company and parts of Pemex.
An earlier government forecast for 1995 inflation of no more than 4 percent has become 15 percent, while economists predict nearer 20 percent. National growth, targeted at 4 percent prior to the crisis, now is unlikely to exceed 1.5 percent of gross domestic product this year.
A tentative forecast of 5 percent overall growth for the plastics industry, made before devaluation by Anipac, has been all but wiped out.
Machinery and raw material suppliers already are feeling the effects of devaluation. Negri Bossi representative Sergio Sosa said one customer who planned to buy a machine in November now is unable to afford it.
``When we had an initial devaluation of 15 percent, we could have done something to help him by perhaps paying 5 percent of the devaluation cost. But, after two days it became 40-45 percent and now it's just not possible to help with more than 5 percent,'' Sosa said.
He expects to sell no machines in the first quarter of 1995 and maybe a few in the second quarter if things improve. But he has little faith in a quick recovery. His own firm has lost money paying in dollars for spare parts that were sold in pesos.
``In the plastics industry we've had problems in the last two to three years. But this year will be worse. A lot of companies will close down,'' predicted Sosa, who runs custom injection molder Tecnologica Plastico Mecanica SA de CV. Half his output, to maquiladoras, is unaffected.
In raw materials, de Leon of M.A. Hanna de Mexico, part of Cleveland compounder and distributor of resins and colorantsM.A. Hanna Co., forecast a drastic drop in Mexican demand.
``We're thinking that some of our customers will go bankrupt as a result of price rises - 40 percent more on prices, and doubled or tripled interest rates. Those with debts in dollars will not have enough working capital to pay on time or cover their bills,'' de Leon said.
``People in Mexico need 50 percent more working capital. But there's no money available at a good rate. If they go to the bank now the interest rate will be 45-60 percent,'' he said.
He gave the example of one customer who ordered about 4,400 pounds of color concentrate but was shocked at the new price in dollars. The customer only had enough money for 1,760 pounds of the concentrate.
``It will be the same for resins. People will buy less with reducing inventories and will work with the least working capital they can,'' de Leon said.
His prediction: Hanna sales down by 40 percent in January and no speedy sign of a revival.
Hanna itself has lost money because of the currency movement. But, de Leon said, it is protected because of its customary high inventory levels.
Hanna de Mexico, already a leader in local engineering resin distribution, is slowing its planned 1995 entry into commodity resins.
``We've put several rail cars of material on hold outside Mexico. That's until we know if the inventory level we have will be salable in, say, 60 days,'' he said.
De Leon also was disappointed with the Zedillo program.
``We were expecting a bit more help for people importing. [Government officials] could havecontrolled the interest rate and they haven't given out enough information for us to plan,'' he said.
De Leon predicts a six-month standstill for the plastics industry.
In Monterrey, CAINTRA's Villarreal just invested in 11 new Nissei injection presses for a new, $10 million plant opened by his firm, Electronicos Animados SA de CV. The pill is sweetened for him because he exports 85 percent of output.
Meanwhile, a balanced approach to the crisis was adopted by Mexico City industry consultant Ricardo Ric rdez Solis. He admitted that inflation and recession will follow the devaluation and even well-run plants will suffer, but he forecasts that survivors will be stronger.
He recalled that this is Mexico's fourth currency devaluation in the past 20 years, but this time the country is in a better state to handle it.
``All the key macroeconomic figures are far better than before. This shows our capacity to react must be that much better this time,'' he said.
Worst off in the industry are processors that never invested totally in local production but also distribute imported products.
``They are now trapped because they have lost the possibility of producing locally in volume and will have a foreign currency debt. They already depend heavily for market position on imports,'' said Ric rdez, chief executive of Internacional de Asesoria y Suministros Industriales SA de CV.
Money for credit will be very short for at least six months with uncompetitive interest rates, he warned. But he pointed to a still-vague government promise of special support for small, medium- and micro-sized firms.
Ric rdez sees opportunities for processors to compete against higher-priced imported products, but firms still will need to import some raw material to meet quality demands.
Firms that export will have the chance to grow, he said. U.S. or Canadian processors wanting to send molds to Mexico to produce more economically for export now have a golden opportunity, while foreign joint ventures could flourish, he said.
Looking at key end-market prospects, he predicted that those with good export opportunities will be attractive. These include automotive and electrical/electronic markets.
Domestic prospects for plas-tics substitution in construction remain good, while electrical parts could lift with replacement of imported parts, Ric rdez said. Beverage packaging will continue to use more plastic.
Peso devaluation will ``demolish'' Mexico's domestic auto market in the first half of 1995, says Kerry McHugh, auto analyst at Baring Research in Mexico City. ``People will walk to work when they have to pay 40 percent for a car loan and they're facing a 10 percent wage increase in the face of 20 percent inflation,'' she said.
She added that auto exports have grown strongly, but it is uncertain how quickly they will rise to compensate for the home market default and how much export demand there will be.
``Once foreign car manufacturers get over the shock of the devaluation and how it was handled, they could regain confi-dence in the country. It's shaken confidence dreadfully,'' she said.
The local auto parts business will benefit from devaluation, she said.