Mexico's private sector chemicals firms said to be in crisis

20 February 2002 00:06  [Source: ICIS news]

MEXICO CITY (CNI)--Mexico's private sector chemicals industry is in crisis because of high fixed natural gas costs and an inequitable feedstock pricing model set by the government, a key industry leader said Tuesday.

Cesar Conde, head of the chemicals division of Canacintra, Mexico's top manufacturers lobby, warned that some of Mexico's chemicals firms face bankruptcy if current conditions are not soon remedied.

"The industry is in crisis," he said.

The industry's chief complaint is that feedstocks sold by state-run oil monopoly Petroleos Mexicanos (Pemex) are priced too high and keep Mexican chemicals producers from being competitive internationally. In Mexico, only Pemex is allowed to produce most major feedstocks, defined as "basic petrochemicals," such as hexane, heptane, pentanes, naphthas, ethane, propane, butane and isobutane, as well as others.

But Conde blames Mexico's revenues-focused Finance Ministry for the high feedstock prices, rather than Pemex, noting that the ministry has final word in determining the pricing model.

Above-market natural gas prices also burden the industry, Conde said, further reducing the chemicals manufacturers' competitiveness in the ongoing global economic slowdown.

Because Pemex also has a monopoly on natural gas sales in Mexico, chemicals makers can't compare prices of the key fuel in an open market. Moreover, much of Mexican heavy industry remains locked into three-year contracts with Pemex that guarantee supply but at above-market prices, Conde said.

The three-year contracts were drafted around first quarter 2001 when natural gas prices were spiking globally. The contracts gave Mexican heavy industry rights to purchase natural gas from Pemex at the then sub-market price of $4/mBtu. Though current world natural gas prices are well under $4/mBtu - as low as $2.40/mBtu - Pemex hasn't renegotiated the contracts, Conde noted.

Domestic feedstocks availability would be improved if Pemex exported less crude oil to US refineries and processed more of the fuel and its derivatives at home, Conde said.

By: Robert Donnelly
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