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February 16, 2015 01:00 AM

Mexico will benefit from strong US economy, experts say

Stephen Downer
Correspondent
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    IHS Chemical
    Quijada

    MEXICO CITY — Mexico is benefiting from the strengthening U.S. economy, and its plastics industry can look forward to a sustained period of success as a result, analysts at a Mexico City conference concluded.

    North American (U.S., Canada and Mexico) business cycles are synchronized, Rina Quijada, Houston-based senior director for Latin America at IHS Chemical, told an Anipac conference in Mexico City February 9. Anipac is Mexico's national plastics industry association.

    “Mexico will benefit from solid growth in the U.S. economy, through trade, capital inflows and remittances,” she said, adding that the U.S. energy boom and housing recovery are “major factors.”

    “All the indicators for 2015 are positive,” said Eduardo de la Tijera, founder and CEO of Grupo Texne, a Mexico City consultancy, “and some are more positive than in 2014.”

    Delia Paredes, executive director of economic analysis at Mexican bank Banorte-IXE, said the fall in the popularity of Mexico's President Enrique Peña Nieto “has not led to a loss of confidence in the bond market. We reduced our growth forecast [for the Mexican economy in 2015] from 4 percent to 3.6 percent but we continue to be optimistic.”

    Peña Nieto's approval rating fell from 50 percent in August to 39 percent in November, the lowest ever for a Mexican president, according to one major national newspaper, Reforma, while rival publication El Universal said the drop was from 46 percent to 41 percent in the same period.

    Higher levels of industrial production and exports, coupled with high levels of consumption nationally, will result in greater use of plastics, De la Tijera told the conference. He estimated plastics goods production will grow between 5 and 7 percent, compared with 7.6 percent in 2014, which De la Tijera described as “a very good year, the best growth year for 11 years.”

    Companies supplying plastics parts to the automotive industry saw their sales grow 16.5 percent, while the production of reinforced plastics grew 14.3 percent and that of bottles 12 percent, he said.

    “Direct employment in the plastics industry grew to almost 250,000 and wages increased. The industry's investment in capital goods went over the $1.8 billion mark, with $900 million having been invested in machinery and equipment. We have bigger, stronger and more competitive companies.”

    Explaining the reasons for the sector's success in 2014, De la Tijera said that, although Mexico's GDP “did not grow much last year” — GDP growth was 2.5 percent — “components that consume plastics grew.” Retail sales increased between 4 and 5 percent, while exports of manufactured goods grew more than 6 percent.

    Personal safety concerns persist in the country, he said. “But we don't know whether that will put a brake on economic growth.”

    Both he and Quijada referred to the positive influences they believe Mexico's energy reforms and the Ethylene XXI startup at the end of 2015 will have on the national plastics industry. Ethylene XXI is a $4.5 billion joint venture between Brazil's Braskem SA and Grupo Idesa SA de CV and is geared to produce 1.05 million metric tons of ethylene annually. In addition, two polymerization plants will be able to make 750,000 metric tons of high density polyethylene a year, while a third will have a capacity of 300,000 metric tons of low density polyethylene a year.

    De la Tijera also warned that the industry “has to be more pro-active when dealing with attempts to ban plastic bags, expanded polystyrene and other plastics.”

    On the same subject, Bill Carteaux, president and CEO of the Washington-based Society of the Plastics Industry Inc, said SPI has spent “millions of dollars in the past few years trying to win the battle against plastic bag bans.”

    He said that getting about 900,000 signatures in a pro-bag referendum that will put the issue on the November 2016 ballot in California cost $3.5 million. An additional $25 million will be spent before the 2016 vote, he added.

    Quijada also spoke optimistically about the economies of South American nations Peru, Colombia and Ecuador, all of which are expected to grow from 3 to 5 percent in 2015.

    “However, Argentina and Venezuela are in recession and the Brazilian economy is stagnating. In Brazil, government intervention in the economy is likely to continue, alongside high labor and capital costs, complex taxation and inadequate infrastructure.

    Brazil accounts for almost 50 percent of Latin America's GDP while Mexico accounts for 21 percent.

    “If Brazil doesn't grow, the rest of the region won't grow,” Quijada said.

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