“Analysts predict a contraction of between 8 and 10% of Mexico’s GDP, and the chemical industry will also have a contraction of around 4%. The problem we have in Mexico is that there are no fiscal or economic incentives to boost recovery.”
What was the impact of Covid-19 on Mexico’s chemical industry during the first half of 2020?
Fortunately, we were able to demonstrate that the chemical industry was an essential segment during the pandemic, as it feeds 40 other industries. The companies most affected were those serving the automotive sector, which was completely shut down during April, May and June. The same happened with the construction segment. The mining sector was not considered essential either, which had a big impact. On the other hand, companies serving the pharmaceuticals, packaging or personal hygiene industries have seen double-digit growth during the pandemic. Overall, the industry has operated at a 60% capacity, while before the pandemic the average rate of utilization was 70%.
As of July 2020, analysts predict a contraction of between 8 and 10% of Mexico’s GDP. The chemical industry will also have a contraction of around 4%. The problem we have in Mexico is that there are no fiscal or economic incentives to boost recovery. For the next 18 to 24 months we will have a challenging scenario, and on the chemical industry front we will only recover the levels of December 2019 by Q4 2021 or Q1 2022.
What is the feedstock situation for the country’s chemical value chain?
Before the pandemic, the industry could not go beyond a 70% utilization rate because Pemex was not able to supply enough feedstock. At ANIQ we have always said that we need a strong Pemex considering its importance as key supplier to the industry. We believe in a strategic alliance between Pemex and the private sector to incorporate new technologies, develop new production and successfully exploit deepwater offshore fields as well as shale gas. All that cannot be done by Pemex alone.
The current administration, however, believes that all the energy sector can be handled by Pemex, and that all the electricity sector can be handled by the Federal Electricity Commission (CFE). As a result, we have a shortage of gas and products like ethane, propane or butane, so they need to be imported, primarily from the US. Last year alone Mexico imported US$35 billion in petrochemicals to feed the chemical industry value chain. On top of this, Mexico also imports 7 billion cubic feet per day of natural gas.
The new trade deal, USMCA, entered into force on July 1st. How is it impacting Mexico’s chemical industry?
The new trade deal is a satisfactory agreement. We managed to include three main principles in it: first, regulatory convergence, meaning that regulations have to follow scientific principles and be agreed among the three countries. The second one was a simplification of the rules of origin, which makes it easier to import or export without paying duties. The third theme was related to the energy sector. Mexico’s energy reform in 2014 allowed for private sector investment in the energy segment, but these investments were not recognized by the NAFTA treaty. The new treaty includes this and gives more certainty.
The AMLO administration is promoting fossil fuels. How can Mexico meet its Paris agreement commitments?
Mexico needs a reduction of 25% in greenhouse gas emissions, and the electricity sector needs to meet one third of that percentage, but the current administration is limiting the expansion of renewables and there is a strong focus on fossil fuels again. We are concerned because in this context, the only way Mexico can meet the goals of the Paris agreement is to further reduce emissions in the industrial and transportation sectors. As ANIQ we are working with the government to emphasize the need for change in the power generation sector.
What are your initiatives to tackle plastic pollution?
ANIQ has a number of commitments: by 2020 not just producers but also transformers, distributors and transportation companies should waste zero pellets. By 2030, 100% of the industry’s packaging should be 80% recycled. And by 2040, 100% of all plastics and packaging should be recycled.
Many cities and states in Mexico have already banned free plastic bags in supermarkets. By January 2021 single-use expanded polystyrene items will be banned as well, including plates, cups and straws.
Would you like to send a final message to the members of APLA?
Today, exchanging information and points of view is fundamental to the economic recovery of Latin America, and the chemical industry is a key factor to meet sustainable development goals. There is enormous potential in Latin America, the market is very significant, and we want to continue promoting the use of chemicals for the benefit of the wider society.