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January 06, 2015 01:00 AM

Oil prices, US economy could affect plastics industry in Mexico

Stephen Downer
Correspondent
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    Plastics News
    Eduardo de la Tijera Coeto

    MEXICO CITY — Seven factors will affect Mexico's plastics industry either positively or negatively in 2015, according to a leading consultant.

    Eduardo de la Tijera Coeto lists the seven as: international oil prices, the U.S. economy, growing consumerism in Mexico, federal and local legislative elections in Mexico, the start of production at Braskem Idesa's $4.5 billion Ethylene XXI petrochemicals complex in Veracruz state, the transformation of state oil company Petróleos Mexicanos (Pemex) and the unsolved disappearance of 43 students in Guerrero state in late September.

    “We cannot neglect them and much less ignore them if we want to keep abreast of market trends and the production of plastics,” writes De la Tijera, CEO of Grupo Texne, of Mexico City, in his Carta al Industrial newsletter.

    If crude oil prices fell to between $20 and $30 a barrel, “one would have to find a balance between the boost that [such an event] would give consumerism and industrial production in the United States… and the effect on Mexico's gross national product and government finances,” he writes. “In my opinion, such a drop now would benefit us [the Mexican plastics industry] more than damage us.”

    With regard to the U.S. economy, he writes that in the third quarter of 2014 it grew 5 percent, a jump “not seen since 2003… Our dependence on the economy of the neighbor is, on one side, beneficial, although it can also cause us problems.”

    In recent times, De la Tijera adds, Mexico has experienced and could conceivably continue to experience in 2015 a boom in retail sales of food, drink, clothing, hardware, auto parts and so on, all of which benefit suppliers of plastic products, from packaging to components.

    On the election question, he writes that 1,100 federal and local deputy seats will be up for grabs this summer, a scenario that increases the risk of some legislators attempting to ban certain plastic products such as polyethylene bags, expanded polystyrene cups and even PET bottles.

    “Pretending that there is no risk or that the regulatory threats can be handled, could lead us to situations similar to those of 2009 and 2010 when part of our industry faced serious danger.”

    Referring to Ethylene XXI, whose construction is set to be completed on schedule in July, De la Tijera writes that “whenever national production capacity of any resin is expanded, demand for that resin increases. It happened with PET and polystyrene in the 1990s and with polypropylene over the past 10 years. To think that the same would not happen with polyethylene is illogical. The question is when will this phenomenon start to manifest itself?”

    The Braskem SA/Grupo Idesa SA joint venture is building an ethane cracker and three polymerization plants that will have a capacity to produce in excess of one million tons of ethylene and polyethylene a year. It is 88 percent finished, the two partners announced last month.

    Turning to the energy reforms impacting on Pemex, he writes: “The manner in which Pemex defines the structure and operation of the ethylene subsidiary will have an influence on the future offer of polyethylene and the integration of the glycol-PET chain. By the same token, the integration of petrochemical operations with those of refining will affect the prospect of having greater capacity to manufacture styrene, propylene and paraxylene monomers and polymers for the PET chain.

    “This transformation could well mean a new era for Mexico's petrochemicals industry, for the good of the industry or the contrary.”

    On the unresolved matter of the disappearance of the 43 students, De la Tijera writes: “We've seen how mass [anti-government] demonstrations, both pacific and violent, have affected the economy of several states, including those far from the scene of the event.

    “The demonstrations also affect segments of the economy that are related to our industry. If they continue, they could affect plastics markets.”

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