Though resin demand in Mexico is expected to fall off 25 percent this year, manufacturers say they are hunkering down. Even with the market in crisis, North American resin manufacturers said they are ready to wait out Mexico's financial problems and are preparing for a better future.
The projection for the drastic decline in demand comes from Arturo Garcia, president of the Mexican Chemical Industry Association.
In a recent interview, Garcia said demand for commodity plastic resins will not approach 1994 levels, when average growth was 20 percent.
Garcia added that, instead of the 10 percent increase in demand that was projected for 1995, before the peso devaluation in December, resin demand will drop 25 percent.
Though they are aware of such dire predictions, resin manufacturers said they are prepared to show their commitment to Mexico by maintaining their presence there.
While prospects for this year and even 1996 are not good at this time, resin makers based in North America said they believe the underlying potential for Mexican markets remains strong, and that the current financial crisis is a temporary glitch that soon will be overcome.
Resin makers said the prospects in the Mexican market are better for engineering thermoplastic resins such as polycarbonate, nylon and engineering grades of ABS, which typically are used by plants involved in maquiladora programs that are directed at products to be exported. Commodity thermoplastics, such as polyethylene, polypropylene and polystyrene, will suffer more in the market because products made from those resins are targeted at domestic consumption.
Resin makers in Europe, however, have a less sanguine view, and tend to see a long period of instability and adversity until the Mexican economy returns to pre-devaluation growth rates.
``If you are going to wait this out, you must have a very, very deep breath,'' said an executive for a European resin supplier who is based in Monterrey. He spoke on the condition he would not be identified.
He said he believes European companies have a less optimisticview of the Mexican markets because they are not as firmly entrenched as domestic resin suppliers and suppliers from the United States.
Also, he noted, the North American Free Trade Agreement provides manufacturers based in Mexico, Canada and the United States with a significant edge in Mexico that European and Asian manufacturers do not have.
``With domestic interest rates at 80 percent or more, there is not much left to day-to-day operations in business here,'' the executive said in an April 11 telephone interview.
For many of the companies that remain, customers unilaterally are extending - or already have extended - payment terms from the usual 30 days to 60, 90 or even 120 days.
Garth Henry, vice president for international operations for M.A. Hanna Co. of Cleveland, agreed that European firms face different competitive conditions in Mexico than do North American firms because of NAFTA. He said Mexico remains an important part of Hanna's strategic plans.
``We only opened Hanna de Mexico a year ago, so our business is not off. We are not growing as fast as we thought we would, but the business has not declined,'' Henry said.
The financial crisis caused Hanna to move more carefully in Mexico, and it has placed a tighter credit watch on its customers while keeping its sales and profit tied closely to the U.S. dollar, he said.
Companies such as Hanna and GE Plastics of Pittsfield, Mass., supply large quantities of resin to plants involved in maquiladoras. Those plants typically deal in dollars rather than pesos, and act as conduits through which imported or domestically produced resins are made into finished or semi-finished goods and exported.
Because they are export-oriented and because Mexico needs the currency that exports provide, the Mexican government has given maquiladoras special treatment.
Juan Mogollon, commercial manager for GE Plastics' office in Mexico City, said he believes the worst of the financial crisis is over, and that the Mexican economy soon will begin to grow.
For now, however, Mogollon and Joseph McGovern, general manager of GE Plastics Mexico, said they are seeing some increased business in Mexico.
``The plastics industry was affected by the crisis, but it still is strong,'' McGovern said.
Because GE Plastics has been in business in Mexico just more than a year, any increase in sales represents growth, McGovern said, although growth has not come as quickly as ex-pected.
Prentice McKibben, manager for business development for Eastman Chemical Co. of Kingsport, Tenn., said his company's plans for a PET plant are proceeding without a hitch.
Eastman is building a 264 million-pound-per-year PET production plant in Cosoleacaque, Mexico. It is to be in production by the fourth quarter of 1995.
``The market has had some changes, but we have adjusted to those changes,'' McKibben said.
While he acknowledged that Eastman always planned to export some production from the Cosoleacaque facility, he said the problems in Mexico caused it to reassess and increase exports slightly.
``We have initial concerns that if the Mexican economy goes into a recession, the demand for goods and services will decline and, in the short-term, prices will drop,'' McKibben said.
``We are taking a long-term view of the market, and that has not changed. Mexico is a good market, and we have a good location and a good relationship with our partner,'' McKibben said, noting that Eastman's partner in the PET facility is Temex, a privately held chemical company.
``While there is a short-term liquidity problem, there are no underlying problems with the economy. This will not be an indefinite thing,'' McKibben said.
He added that Eastman continues to sell PET in Mexico and, while some of its customers have cash-flow problems, ``this is not a catastrophe.''
Indra Goradia, vice president for sales for Vinmar Inc., a company based in Houston that exports PE to Mexico, agreed with McKibben, even while being more pessimistic about the ability of Mexican companies to survive the financial crisis.
``We feel this setback is temporary,'' Goradia said. ``The undercurrents in the Mexican markets are quite strong and there is inherent strength in the Mexican economy.''
However, he said he expects as many 500 of Mexico's 3,000 plastics processing firms to go out of business as the weakest producers fall by the wayside.
Goradia said his company now deals with its customers either on a cash basis or with letters of credit to ensure payments.
That has forced Vinmar to deal with a fewer customers, he said, but those customers have the highest credit ratings and best business prospects.
Garcia said several of the Mexican Chemical Industry Association's 250 member companies will face tremendous financial problems if the crisis lasts beyond a year.