Market Monitor - Chemicals - Mexico 2016

Market Monitor

  • Mexico
  • Chemicals/Pharma

21st July 2016

The sector is highly exposed to the price volatility of oil-derived commodities and foreign exchange fluctuations due the lack of refining capacities.

  • The Mexican chemicals industry has lacked sizeable investments in recent years, which has adversely affected competitiveness. Production of petrochemicals as the most important subsector has decreased over the last couple years, despite increased demand.
  • Due to inefficiencies in supply and uncompetitive prices of basic petrochemicals, businesses depend on imports, in particular from the US.
  • The sector is highly exposed to the price volatility of oil-derived commodities and foreign exchange fluctuations due to large imports of raw materials and the lack of refining capacities in Mexico. For some businesses, sales are made in Mexican pesos but nevertheless converted into US dollars, which might result in foreign exchange losses and slow payments.
  • Despite those risks, further increasing domestic demand is a positive factor for the Mexican chemicals sector. It is expected that the industry growth will be above GDP growth in the medium term due to the energy reforms approved in 2015, which will move production and supply of refined products to the private sector, away from the state-owned Petróleos Mexicanos (Pemex).
  • The average payment duration in the chemicals industry is 60 to 90 days. The number of payment delays increased in 2015, and is expected to increase further. However, an increase in insolvencies is not expected.
  • Our underwriting stance on the sector is neutral. A more restrictive underwriting approach is required on buyers that provide services to the state-owned oil company Pemex, whose liquidity levels have deteriorated over the last two years due to depressed oil prices.
  • We are also more cautious with smaller chemicals businesses, as those can be heavily affected by the Mexican peso exchange rate volatility.

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