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Mexico polymers feel US 'nearshoring' effect

  • : Petrochemicals
  • 22/10/13

Demand for plastic resins such as polypropylene (PP) and polyethylene (PE) has increased in Mexico in recent months, in part due to a trend of "nearshoring" by US-based companies that have moved some of their production lines from China to Mexico.

The decision to move production closer to the US, a practice known as nearshoring, has been supported by logistics and supply chain disruptions seen in the last two years which resulted from the Covid-19 pandemic and worsened in the aftermath of the Ukraine-Russia conflict and rising tensions with China.

"Companies are increasingly looking to supply the US with more products and to avoid all the logistics problems from Asia seen in the last two years," a source with knowledge of the Mexican plastic resins market told Argus.

"Reshoring" operations, or moving production lines back to the US, or nearshoring them to Mexico or Central America, is not a novelty, as more and more US companies are getting more serious about bringing manufacturing capacity closer to home, management consulting group Kearney said in a research report entitled "The Tides are Turning".

Kearney's 2021 Reshoring Index shows that apart from companies already reshoring or nearshoring, a larger number of chief executives and other executives from US-based companies expressed growing positive sentiment for the concept than the year prior.

Additionally, executives are increasingly looking for opportunities where a supplier environment between Mexico and the US can be compared favorably with the existing one in China, both in US reshoring or in a nearshore area.

Indeed, US companies deciding to move operations to Mexico have great expectations for their commercial and logistics performances, according to Omar Troncoso, Kearney's partner in Mexico City.

According to Troncoso, US companies are not starting from scratch and building greenfield projects, but betting on moving production lines and keeping them as close as possible to their headquarters in the US. Because of that, cost savings equations have become secondary to the logistics and commercial gains.

Troncoso cited Monterrey, in northern Mexico, as one of the most viable places for nearshoring to the US, and said the trend has caused trade flows between the US and Mexico to increase significantly in the last few years.

The most demanded plastic products in the US coming from Mexican nearshore operations relate to flexible applications, piping, and automotive.

A resin trader active in Mexico told Argus that in border cities such as Juarez and Tijuana sentiment is very positive in Mexican manufacturing for nearshoring. "At least 80pc of companies are telling me they are working on transfers [of production] from China into Mexico. That is very good news for the Mexican market," the trader said.

A PP market participant told Argus that after all the logistics troubles in the supply chain spawned by Covid-19 restrictions and reopenings, as well as geopolitical concerns, he saw potential for more capacity increases from customers in Mexico to serve the US market. This is not related to internal or domestic demand in Mexico, but to reshoring product from China.

While PP demand in North America as a whole is expected to decline this year, with the market forecasting a 3-4pc demand drop throughout the continent, the source said that in Mexico alone, PP demand this year is growing compared with 2021. Part of this growth is coming from nearshoring, much of it from US product imported to serve nearshore companies in Mexico that ship final fabricated products back to the US.

Furthermore, PP demand has been supported by the arrival of new companies coming from China. Those companies have brought makeup molds to transform plastic resin into bottles and cans, among others, to Mexico, instead of operating them in China. Those products will be made in Mexico and sent to the US.

Another important attraction for shifting output to Mexico is that it does not suffer currently from shortages of labor, as is the case in the US, where unemployment is at a 50-year low of 3.5pc.

By Frederico Fernandes


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