Market Monitor - Chemicals performance - Mexico

Market performance at a glance 

Mexico  

• Lower economic growth in Mexico (forecast 2.6% in 2015) will affect the domestic chemicals sector, which is expected to show only modest growth.
• The positive effects expected by the comprehensive energy reform in 2014 to liberalise the Mexican energy sector remain uncertain due to current low oil prices.
• Lower oil prices have a negative effect on the oil, fuels and plastics subsectors, e.g. high inventory against low prices of oil derivative products. This might imply losses and higher costs that could not be easy to pass on to customers, while margins are already thin.
• The volatility of the Mexican peso affects chemicals importers. For some businesses, sales are made in Mexican pesos but nevertheless converted into US dollars, which might result in foreign exchange losses and slow payments.
• The average payment duration in the chemicals industry is 60 to 90 days. Currently the number of payment delays is high, and expected to increase further. However, an increase in insolvencies is not expected.
• Due to the problems mentioned above, our underwriting stance on subsectors like oil and fuels, plastics and fertilizers is currently more restricted.