APLA '17: Pochteca expects 2-3% GDP growth in Mexico

12 November 2017 16:27 Source:ICIS News

RIO DE JANEIRO, Brazil (ICIS)--Mexico's economy should continue growing by 2-3%, given the strong fundamentals in the economy, an executive of a chemical distributor said.

"We have a growing middle-class with higher disposable incomes that will foster domestic demand," said Eugenio Manzano, executive director of Pochteca.

He made his comments during an interview on the eve of the annual meeting of the Latin American Petrochemical Association (APLA), which begins on Sunday.

The country is making good progress in energy reform, which has opened Mexico's oil-and-gas sector to companies other than state producer Pemex.

By allowing outside companies to invest in Mexico, the reforms intend to reverse the recent declines in the country's production of oil and natural gas. Although Mexico still exports oil, it has a deficit of every major class of hydrocarbons, relying on US imports to meet a substantial portion of its domestic gasoline and natural-gas demand.

Reversing these deficits will take time, Manzano said. But it will benefit the country by increasing supplies of oil and natural gas.

There are already signs that this is happening. Earlier this month, Mexico's president announced the discovery by Pemex of high-quality light crude, the largest made by the company in 15 years.

The field has 1.5bn bbl of oil equivalents (boe), representing reserves of 350m boe, Pemex said. The field is close to existing infrastructure, so it could soon help satisfy domestic demand for oil and wet gas.

Earlier this year, a consortium made up of Sierra Oil and Gas, Talos Energy  and Premier Oil announced that its exploration well, Zama-1, discovered an enormous amount of offshore oil, estimated at 1.4bn-2.0bn bbl.

Italian energy company Eni also announced significant discoveries this year.

Despite these developments, companies in Mexico do face some challenges.

One of them is high interest rates. Mexico's central bank has been raising rates to fight inflation.  These now stand at 7.00%.

Higher rates in themselves make it more expensive to do business, Manzano said. But they hurt chemical distributors in another way, because their customers often request longer credit terms.

These longer terms require distributors to have larger amounts of working capital, he said.

Volatile exchange rates can cause swings in the inventory valuations for chemical distributors, Manzano said.

The APLA annual meeting runs through Tuesday.

Interview article by Al Greenwood

By Al Greenwood