Mexico’s improved fortunes on US tariffs propping up petchems demand – Entec exec

SAO PAULO (ICIS)–Mexico’s chemicals fortunes seem to be turning for the better after the country was spared from the most punitive US’ import taxes, according to an executive at chemicals distributor major Ravago’s Mexican subsidiary.

Pedro Escalona, sales director at Entecresins Mexico, said demand for most polymers has notably picked up in the past weeks, with order which were on hold now flowing to more optimistic customers.

Among the main polymers, only polypropylene (PP) remains in the doldrums, said Escalona, haunted by low prices for the monomer.

Overall though sentiment is on the up and has been so especially since 2 April, when the US announced sweeping tariffs but spared its trade partners within the USMCA free trade zone, Mexico and Canada.

Prior tariffs in some sectors, however, remain, and Escalona said automotive seems for now the most problematic sector.

“For the rest, people seem to start assuming Mexico will be spared from the worst possible scenario,” said Escalona.

WHAT ONE MONTH CAN CHANGE
Speaking to Escalona, practically everything seems to have changed in one month, with exception of PP.

In an interview with ICIS during the plastics trade fair Plastimagen in Mexico City in mid-March, the Entec executive painted a doom-and-gloom picture of both chemicals and wider manufacturing, with falling prices and domestic and overseas woes mounting.

As of Thursday, 24 April, this is what he had to say:

“Even a month ago, or even less, even two weeks ago, there were a lot of people holding orders, saying they were unsure whether they would need the product for May, or even for June. Some large clients, while not cancelling any orders, were starting to say they may need to lower consumption going forward,” said Escalona.

“But in the last few weeks, there is more confidence in general, and people are already confident in going out to make purchases. Everyone seems to be more optimistic in that we don’t think anything will finally happen that will significantly affect Mexico’s economy.”

A stone on the positive story, however, remains the large, petrochemicals intensive automotive sector on which US President Donald Trump had imposed tariffs prior to 2 April. Analysts have said the tariffs, in their current form, could greatly dent the sector’s competitiveness.

But sources in chemicals remain optimistic Mexico could use this chance to increase its USMCA compliance, mostly related to rules of origin which would at the same increase its manufacturing stance and integrate it even more with the US economy.

As the US tries to contain China’s formidable rise in global supply chains, other sources have said the US would shoot itself on the foot going against Canada and Mexico, economies which are now well integrated within the North American free trade zone. The battle should be, they said, North America as a block versus the other large trading blocs.

“Automotive still has over its head a lot of uncertainty, because there are some issues that haven’t been fully defined yet regarding automotive components. That’s the only one that still has some uncertainty,” said Escalona.

“Demand is not the best it could be, but it is not too bad either. PP is still suffering from low prices for the monomer, which is expected to fall further. But for the rest of plastics, PE [polyethylene], PS [polystyrene], and for PET [polyethylene terephthalate] there has been some notable price rises.”

Escalona said that US companies must have done their important bit of lobbying to the Trump administration about how harming tariffs on Mexico could be for them, as well.

The absence of Mexico and Canada on the board Trump exhibited on 2 April quickly raised the prospects that, behind the scenes, renegotiation of the USMCA deal is well underway, an assessment Escalona deemed possible.

But equally, he said there may be starting to be a realization within the Trump administration that punitive, sudden import tariffs to certain countries – not least China – would deprive the US of key markets it needs to sell materials of which it is oversupplied.

“[Very punitive tariffs on Mexico] Just wasn’t convenient for the US. We’ll need to see what happens, but I think the US is also going to have to sit down and negotiate with China. The US is full of raw materials it exports to China – monomers such ethane, propane, benzene… That’s why prices are falling,” said Escalona.

“There are many things they plan for, and the initial strategy was to renegotiate with tariffs as a pressure measure. But clearly, they are going to have to reconsider this and fine-tune several aspects.”

DOMESTIC FRONT: LESS OPTIMISM
While most analysts think Mexico has done good progress on issues key for Trump, such migration at the border and stricter measures to control fentanyl trade – a powerful drug which has caused havoc across the US – the domestic policies of President Claudia Sheinbaum remain a red flag for many chemicals players.

With a declared intention to expand the welfare state, Mexico may be turning into the ‘nanny state’ which does not incentivize competitiveness, some sources said at Plastimagen.

Moreover, fiscal policy has been loose under Sheinbaum’s predecessor, also from the left-leaning Morena party. The expansion in the welfare state was mostly funded by debt, and fiscal deficits were recurrent.

Sheinbaum has promised to remedy that and seems more open to the necessary private investments needed in Mexico to propel it to be a key part in the nearshoring trend – North American companies bringing manufacturing facilities closer to home.

But Sheinbaum has ploughed through other measures in parliament which are worrying business.

Thanks to the supermajority of two thirds of seats in Parliament voters granted Morena in June 2024 – and propelled Sheinbaum to the top with 60% of popular vote – the government approved a judicial reform, which most analysts agree is to weaken the rule of law, in a country much needed of stronger rule of law.

A key measure in the bill was that judges would be elected by voters, which has sparked fears the well-funded and strong organized crime will have it easier to silence the judiciary.

Escalona, not impressed, said those elections for judges have started and told how he feels weird seeing advertisements by candidates on boards or media outlets. Seeing adverts to vote for judges clearly does not feel right, he came to say.

“We have had plenty of politicians who were not prepared or educated for the positions they were chosen for. While it’s not optimal, it can be expected in a democracy. But the job of a judge, and in country like Mexico, is a completely different matter,” he said.

“And, invariably, you can see all kinds of people running to be judges. It’s tremendous. We’ll need to see how this pans out, but everyone seems to agree that this will weaken the rule of law – and that is not good for economic development and stability.”

Interview article by Jonathan López

Clarification: Re-casts subsidiary name in paragraph two. Entec Polymers, as written previously, is Ravago’s subsidiary in the US