The spread between wholesale prices and retail price caps will now no longer cover operational costs, writes Cas Biekmann
The spread between Mexican state-owned Pemex's LPG wholesale prices and government-controlled retail price caps is no longer enough to cover operational costs, domestic distributors association Amexgas has warned after three consecutive months of the cap remaining relatively unchanged.
The average of 2,747 city specific LPG retail price caps, set by energy regulator the CRE, stood at 10.91 pesos/litre ($2.02/USG) for the week ending 8 March, with maximum prices ranging from Ps9.64/l to Ps12.54/l across the country owing to differing logistics costs. The average wholesale price from Pemex's 26 selling points was Ps8.22/l for the week, resulting in an average margin between the two rates of Ps2.69/l.
This is not enough to cover the costs of salaries, fuel and maintenance, Amexgas said on 24 February. Inflationary pressures and regulatory changes, which force distributors to prove their regulatory compliance with several government entities, have further driven up operational costs, LPG distributors say. Amexgas does not oppose the government's price controls but disagrees with the way the CRE's methodology fails to adequately factor rising international LPG prices.
Mexican imported propane prices from the US Gulf coast stood at 97.20¢/USG ($507.50/t) on 3 March, up by 5pc from a year earlier — when the price was 88.89¢/USG, the price cap was Ps10.64/l, Pemex's wholesale prices averaged Ps6.69/l and the margin was Ps3.95/l, or 47pc higher. The depreciation of the peso against the US dollar has also weighed on domestic LPG prices, as Mexico sources more than 60pc of its supply from imports. The exchange rate stood at Ps20.43/$1 on 3 March, compared with Ps17.02/$1 a year earlier, according to Mexico's central bank data.
Mexico's LPG distributors recently urged the government to consider altering the price cap and simplify regulatory hurdles. Amexgas members in November 2024 announced plans to strike, citing lower profit margins and scarcer LPG supply. Government promises to establish working groups to tackle these problems prevented the strike from happening. But the government has since said it would not remove the price cap to protect families from potential LPG price hikes.
Talks between the CRE and distributors are ongoing, but a new strike is not off the table, market participants say. Mexico largely relies on last-mile distributors to deliver LPG tanks and cylinders to residential and rural customers. Private-sector firms have played a crucial role in distributing LPG in Mexico for decades and prior to the country's landmark 2014 liberalisation of the energy market.
Pemex's LPG imports dropped by 12pc on the year to 73,100 b/d (195,400t) in January, the lowest since October 2023, company data show, as US propane and butane prices increased. Mont Belvieu propane prices on the US Gulf coast averaged 89.7¢/USG ($468.50/t) in January, an 11pc increase from 80.5¢/USG a year earlier, as demand in the US grew when a winter storm hit in mid-January.
