Economics: Dubious Paths to Reinventing Pemex
The new management team at Pemex that CEO José Antonio González presides over has been on the job for almost 100 days, a period in which it was almost immediately faced with deep budget cuts ordered by the Ministry of Finance, followed by protests by Pemex suppliers over the mushrooming amounts they are owed, and one of the worst accidents in Pemex history in the form of a massive explosion at a plant in Coatzacoalcos, Veracruz. To make matters worse, at the end of March, Moody’s downgraded its rating on Pemex debt to the cusp of junk status.
The company’s financial results for the first quarter of 2016 add to this scenario a negative situation in which revenue and income continue to fall, its subsidiaries are also reporting losses, it pays more to service its debt and its forex loss proved to be greater than it was in the same quarter of 2015.
The most recent information is congruent with the analysis made in past issues of Weekly Trends: Mexico Economy of the deep structural problems hobbling this state-owned firm, and the extent to which it will be a real challenge to find viable routes along which Pemex can once again become a competitive company both inside Mexico and internationally.
In this week’s “Outlook” section we analyze the company’s most recent financial and operational results, especially in relation to the company’s prospects going forward as well as those of the broader petroleum sector.
In other economic news last week, the authorities reported that industrial production fell at a real 12-month rate of 2.0% during March. The calendar effect of the fewer working days implied by the Holy Week vacation period coming a month earlier this year than in 2015 probably contributed to the weakness of the report.
Activity fell in three out of four components of industrial activity with only the smallest (utilities) managing to register minimal growth. The mining sector turned in the worst performance of all, as output fell a real 5.1% below levels of a year earlier. The manufacturing industry saw production recede 1.5%, with the only contraction of similar depth in recent history the 1.3% real drop recorded for June 2013. It is worth noting that some manufacturing components related to the automotive and petroleum sectors also experienced significant reductions in activity. The construction sector descended a real 1.0% year on year after having grown an average 3.6% during the previous two months.
On a more promising note, the National Association of Supermarkets and Department Stores (Antad) reported that sales at all stores open more than a year were a real 7.4% higher year on year in April, the strongest expansion of SSS since the 10.7% increase reported for November 2011. In recent months, internal consumption in Mexico has been especially robust, and the rise in consumer buying has been apparent in the strong gains that Antad-affiliated stores have reported month after month.
Factors helping to fuel the rise of such spending include the increased availability of consumer credit, which grew a real 8.8% year on year in March in what was the strongest expansion of consumer credit reported in 29 consecutive months. Between January and March of this year, real credit grew a real annual 8.1%, in contrast with the 2.7% increase reported for the same period of 2015.
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