Corrected: Mexico auto factory closures to hit industrial energy demand following coronavirus outbreak

Author: Claudia Espinosa

2020/03/26

Correction: In the ICIS story headlined “Mexico auto factory closures to hit industrial energy demand following coronavirus outbreak” dated 26 March 2020, sources from WardsAuto and PwC were talking in 2018, not 2020. As a result, the years were specified to reflect the time they made their comments. A corrected story follows.

  • Mexico auto makers suspend plant operations
  • Extended offline time, other slow manufacturing may cause shifts in power demand on some nodes
  • Auto industry energy consumption likely to fall in 2020 amid wider demand issues

HOUSTON (ICIS)--Demand from Mexico’s industrial sector is poised to take a hit as state and federal authorities begin implementing progressively more restrictive measures to contain the coronavirus.

The industrial sector is the second-largest energy consumer in Mexico, representing 32% of the country’s energy consumption in 2018, according to latest available data from energy ministry SENER.

Automotive manufacturing was one sector that was already struggling with coronavirus-disrupted supply chains and falling consumer demand for their products. In recent days, nearly all automotive manufacturers with Mexico operations announced production suspensions.

US-based General Motors, Mexico’s top automaker, began progressive plant suspensions for all its North America operations on 20 March with no end date yet announced. Mexico’s second largest automaker, Nissan, has scheduled suspension of its Mexico operations from 25 March until 14 April.

Other leading auto manufacturers in Mexico announced similar measures, with some already pushing initial restart dates into April. Some companies said in press statements that they were unclear on restart dates because they depend on evolving factors, likely including health measures, restrictions on travel and quarantine requirements.

Mexico’s auto manufacturing sector consumed a total of 18PJ of energy in 2018, 54% of this electricity and 36% natural gas, according to latest available data from energy ministry SENER.

If Mexico’s auto assembly and auto part plants remain offline for an extended period as the coronavirus’ public health and other manufacturing sector impacts unfold, there could be significant shifts in electricity demand and dispatch needs for certain nodes.

Extended suspensions could also mean economic losses within Mexico, according to the country’s association of auto distributors, known as AMDA in Spanish. AMDA said in a 23 March press release it had sent Mexican President Andres Manuel Lopez Obrador a letter proposing various relief measures for the troubled industry among other measures.

HEADWINDS
Energy demand from the auto manufacturing sector is likely set to decrease this year as the industry has been facing declining demand in the US and Canada, where Mexico exported nearly 86% of production in 2018, according to latest available data from Mexico’s auto industry association, known as AMIA in Spanish.

US new-automobile sales are expected to continue falling from the record highs they set earlier in the decade.

Several risks are emerging that could quicken the pace of those declines.

WardsAuto expects US sales will reach 17.1m light vehicles 2018, close to the level in 2017, said Haig Stoddard, senior industry analyst for the automobile publication. He made his comments at the end of 2018.

In 2019, sales should reach 16.8m light vehicles, he said.

Consultancy PwC was more pessimistic, expecting sales could be 16.9m in 2018, down from 17.1m from 2017, said Ray Telang, who leads the consultancy’s US automotive practice. He made his comments at the end of 2018.

US automobile sales should continue falling in 2019 and 2020, but the decline should be gradual and not approach the steep drops of previous downturns, PwC said.

Sales should fall because they have been at elevated levels for so long, Stoddard said.

Many consumers delayed automobile purchases because of the financial crisis in 2008, and as the economy recovered, they started replacing their old vehicles.

Those purchases increased auto sales to unusually high levels, said Stoddard. The US had several back-to-back years in which annual sales exceeded 17m, something that has never happened before. Now, there is little excess replacement demand, outside of the normal churn of vehicles.

“There’s just not going to be a lot of pent-up demand going forward,” said Stoddard.

With the extent of lockdown measures now in place across much of the US, restrictions on non-essential activity are likely to suppress any demand in this sector for some time.

The automotive industry is a major global consumer of petrochemicals which contributes more than a third of the raw material costs of an average vehicle.

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