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Mexico to lift final fuel price caps tomorrow

29 Nov 2017 19:17 GMT
Mexico to lift final fuel price caps tomorrow

Mexico City, 29 November (Argus) — Mexico is set to take the final step in nationwide fuel price liberalization tomorrow, but significant changes in price dynamics seem unlikely with key storage and pipeline infrastructure still in the hands of state-run Pemex.

Price caps will be lifted in the last 23 states, representing 64pc of Mexico's market, including the capital city and Guadalajara, Mexico's two biggest consumption hubs. The opening also includes three states in the Yucatan Peninsula, originally set to be liberalized on 30 December.

Mexico's largest fuel retailers association, Onexpo, said the early opening sends "a good signal to the market," but the association's senior representatives said they do not expect prices to move significantly after liberalization.

The government has announced its intention to maintain until the end of next year a formula which sets deductions from fuel excise taxes. The mechanism is designed to smooth out any sudden price hikes or drops.

The finance secretary published today in the official gazette an updated IEPS deduction, removing elements referring to the soon-to-disappear maximum fuel prices set for 90 regions. The secretary said the changes would not alter how IEPS deductions are calculated.

The IEPS deduction mechanism was put into place after gasoline and diesel prices went up by 14–20pc in January, when a new pricing formula tied to international fuel prices and reflecting logistics costs was introduced.

Investors have said a major hurdle to market development is access to fuel infrastructure. It mostly remains in the hands of state-run Pemex, except in the northern states of Sonora and Baja California where US independent refiner Andeavor won capacity in an open season in May. All subsequent auctions to open portions of Pemex's infrastructure to third parties have been indefinitely suspended.

Private fuel storage projects are developing across Mexico, but more costly fuel pipeline investment is scarce.

Pemex remains the sole supplier in most of the country, even to non-Pemex branded retail stations which have opened in recent months. These include BP, Chevron and Total, as well as some domestic names such as Hidrosina and Grupo 500.

Independent gasoline imports have begun, but remain low, while independently imported diesel is growing more quickly. Non-Pemex gasoline imports grew five-fold to 147,800 bl in October compared with the previous month and from almost nothing a year ago, data from Mexico's tax office shows. Diesel imports reached 1.129mn bl, up 33pc from September. Last month's unusual boost can be attributed to Andeavor, which started importing fuel in the two northern states that month.

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