Lloyd Mexico Economic Report - June 1999
CONTENTS:
- STOCK MARKET RECORDS NEW HIGH
- SLIM PICKINGS?
- TRIBASA-ENRON JOINT VENTURE
- NEW CAR SALES
- CERAMIC TILE EXPORTS
- WOMEN AT WORK
- HEAVY METAL POISONING
- TREES TO CUT DOWN.....
- .....AND TREES TO LEAVE ALONE
- MORE JOBS IN DURANGO
- RENEWAL OF AIRLINE FLEETS
- COCA-COLA MERGER REJECTED
- CEMENT PRICES
STOCK MARKET RECORDS NEW HIGH
The Mexican Stock market (Bolsa Mexicana de Valores) climbed into previously uncharted territory last month as its main index, the IPC (Indice de Precios y Cotizaciones) smashed through the 6,000 barrier for the first time. Since the start of the year, the combined capitalization of all the companies listed on the BMV has risen by 48.3%, and the IPC has risen by 53.56%. With the peso holding firm against the dollar in recent months, the IPC has risen more than 55% in dollar terms since January 1. Most analysts agree that the rise reflects a substantial improvement in macroeconomic indicators over the past twelve months and the significant increase in world oil prices since the start of the year.
Consumer prices rose just 0.47% in the second half of April, their lowest 14-day rise for 11 months. The higher oil prices reduced Mexico's first quarter trade deficit to 1.152 billion dollars, 34% less than during the corresponding period of 1998, according to revised figures from the Finance Secretariat. Foreign reserves also look healthy. They totaled 30.26 billion dollars at the end of April.
SLIM PICKINGS?
When Mexico's wealthiest businessman, Carlos Slim, goes shopping, he does so in some style. Last month, he spent more than 600 million dollars in less than ten days. Slim is the majority shareholder of two of Mexico's largest corporations: Telefonos de Mexico (Telmex) and Grupo Carso. Before his buying spree began, Slim had announced that a Carso subsidiary, Grupo Sanborns, which raised 225 million dollars in a successful initial public stock offering on the Mexican Stock Exchange in April, was investing 129 million dollars over the next eighteen months in expanding and remodeling its chain of stores. Sanborns is the holding company for 101 Sanborns restaurant-stores, 31 Sanborns Cafés and 41 Sears Mexico stores. Soon afterwards, it was announced that Sanborns was going international and had plans to compete for consumers in the U.S., Central and South America. Expect to find the first U.S. Sanborns stores in cities like Los Angeles, San Diego and Chicago, each of which has a large number of resident Mexicans.
Then Slim's buying spree really got going! First, Telmex announced that it had entered an alliance with U.S. firm SBC Communications to buy a Puerto Rican cellphone firm. Then Telmex bought out Sprint's 50% share of their joint venture to provide long distance service to Hispanics in the U.S.. The combined cost of these two Telmex deals was an estimated 320 million dollars. Next, Slim's venture capital fund, Sinca Inbursa, spent about 230 million dollars in acquiring a 24% stake in Televisa, the world's largest Spanish-language broadcaster, based in Mexico City.
To round off a busy week, Grupo Sanborns bought 60.32% of a cake-shop chain, Pasteleria Francesa (commercial tradename El Globo), for about 52.1 million dollars and Slim paid 15 million dollars for a 5.3% stake in CDnow, a New York-based online music retailer.
TRIBASA-ENRON JOINT VENTURE
Grupo Tribasa has announced the creation of a new company, Oleoducto del Golfo, a 50-50 joint venture between Tribasa and U.S.-based Enron Engineering and Construction Company. Enron is the world's second-largest operator of oil pipelines. The new firm's chief objective is the construction of the oil pipelines needed for the Cadereyta 2000 project, a key component of the on-going modernization and reconfiguration of Petroleos Mexicanos (Pemex) oil refineries. The planned pipelines include a 1022-kilometer, 24-inch pipeline from Nuevo Teapa in the state of Veracruz to the Cadereyta refinery in Nuevo Leon and a 273-kilometer 12-inch pipeline from Cadereyta to the border city of Matamoros in the state of Tamaulipas. The estimated cost of the project is 100 million dollars.
NEW CAR SALES
Figures released by the Mexican Automotive Industry Association show that during the first four months of this year sales of new cars (180,187 vehicles) were 11.3% lower than the same period in 1998. However, this fall in domestic sales was more than offset by an increase in vehicle export sales. Up to April 30 this year, 361,685 vehicles had been exported, 18.4% more than during the first four months of 1998. Overall, automobile production was up 1.4% compared with last year. The Japanese auto giant Honda estimates that by year end its sales of vehicles in Mexico will have increased by more than 50% compared to a year ago. Honda hopes to sell 10,000 Accord sedans (assembled in its El Salto plant on the outskirts of Guadalajara) as well as 500 Coupe‚ás and 8,000 Civic sedans, imported from the U.S..
CERAMIC TILE EXPORTS
Mexico is now the third largest supplier of ceramic tile to the U. S. market, accounting for about 14% of total sales in 1998. The total value of the U. S. ceramic tile market is estimated at 862 million dollars. According to the Nacional Foreign Trade Bank, (Banco Nacional de Comercio Exterior), Bancomext), Mexican companies were well represented in this year's "Tile Fair" in Orlando, Florida.
WOMEN AT WORK
Traditional roles are changing. During the past 27 years, the percentage of the workforce that is female has doubled from 17% in 1979 to 34% in 1997, according to figures released by the National Women's Commission (Comision Nacional de Mujeres, CNM) and the Secretariat of Labor and Social Provision. Of the 5.5 million workers affiliated to the country's largest union grouping, the Mexican Workers' Confederation, about 2 million are women, 80% of whom have children.
The CNM cites preliminary results from the 1997 National Employment Questionnaire showing that the workforce is now comprised of 38.3 million people, 25.3 million male and 13 million female. 5.5% of female workers have employment in the primary sector, 19.6% in the manufacturing sector and 74.9% in services, the tertiary sector. The CNM points out that in many industries salaries and work-related benefits still favor male employees.
HEAVY METAL POISONING
The first quarter results of one of Mexico's principal mining corporations, Grupo Peñoles, were disappointing, mainly due to the low price of metals on world markets. The group's operating profit was down to 26.55 million dollars, 42.48% less than for the first quarter of 1998. Metal prices have begun to recover slightly in recent weeks, boosting Peñoles share price.
Last month, federal authorities ordered Peñoles' huge Met-Mex metals foundry in the northern city of Torreon to comply with federal environmental standards or face possible closure. The plant, which refines lead, silver, gold and bismuth, is blamed with causing dangerously high lead levels in the blood of more than 50% of the children living in its immediate vicinity. Many local residents are to be relocated and Peñoles has been ordered to cut production by 26% until air quality norms are met, and to create a 6.4-mi-llion-dollar education and health-care fund. Met-Mex employs about 30% of the local workforce.
Peñoles has consistently budgeted about 20% of its annual investments for the reduction of environmental problems but environmentalists have hailed the government action as setting an important precedent in cracking down on industrial pollution.
TREES TO CUT DOWN.....
Grupo Pulsar plans to invest 300 million dollars over the next ten years in creating 300,000 hectares of commercial tree plantations in the states of Chiapas and Tabasco in southern Mexico. The plan is one of the world's most ambitious forestry projects ever. Jesús Roberto Rivas, the managing director of Desarrollo Forestal, the forestry subsidiary of Pulsar, says that in five or six years time, the plantations will produce 8 million metric tons of wood products a year, an amount approximately equivalent to Mexico's total current forestry production. Most of the plantings will be of tropical eucalyptus trees native to Australia and Indonesia, which have been genetically improved in Brazil. From 10-centimeter high seed-lings, the trees take about six years to grow to a harvestable height of 35 meters with a diameter of 25 centimeters. A variety of wood products will be produced, principally for export to the U.S. and Japan.
.....AND TREES TO LEAVE ALONE
A document published by the Center for Economic Studies for Sustainable Development (Centro de Estudios Economicos para el Desarrollo Sustentable, Cespedes), suggests that some of Mexico's forests may soon contribute an additional 100 to 270 million dollars a year to the economy if they are incorporated into the proposed new international market aimed at regulating the use of carbon-based fuels.
The proposal, emanating from the December 1997 "Climate Summit" in Kyoto, Japan, is seen as a vital step in reducing global warming. A "carbon market" would allow large-scale producers of carbon dioxide, such as thermal power stations in the industrialized countries, to trade their carbon dioxide emissions for sustainable forestry projects, which help to reduce atmospheric carbon dioxide, in developing countries.
MORE JOBS IN DURANGO
A new pulp and paper processing plant operated by Celulosa y Papel (Celpap), a subsidiary of Grupo Industrial Durango, will provide (directly and indirectly) up to 3,500 jobs in the industrial sector of the city of Durango in northern Mexico. The new plant is claimed to be non-polluting, unlike most older generation paper mills.
RENEWAL OF AIRLINE FLEETS
Grupo Cintra, the holding company of Mexico’s two largest airlines, Aeromexico and Mexicana de Aviacion, is investing more than 5 billion dollars over the next decade in order to acquire 180 new airplanes. Most of the planes to be replaced are Boeing 727s. The decision on whether replacements will be ordered from Boeing or Airbus is likely to be taken later this year. The average age is 12.4 years, making the combined fleet the youngest in Latin America, according to Guillermo Turincio, Cintra´s corporate finance director.
The objective of the fleet renewal is to reduce the average age of planes flown by Mexicana and Aeromexico from the current figure of 12.4 years to between 7 and 8 years. This would place both airlines among those with the youngest fleets in the world. Cintra is expected to continue its present policy of leasing half its fleet and owning the other 50% outright.
COCA-COLA MERGER REJECTED
Coca-Cola de Mexico is appealing a recent decision by the Federal Monopolies Commission (Comision Federal de Competencia), which rejected Coke's proposed merger with Cadbury Schweppes. Coca-Cola currently possesses rights over several brands including Coca-Cola, Coca-Cola Light, Fanta, Sprite, Fresca and Manzana Lift. Between them, they account for 68% of the total carbonated drinks market in Mexico, a figure which would rise to 77% if Coca-Cola were also allowed to sell Schweppes brands such as Canada Dry, Penafiel and Balseca.
Last December, Coca-Cola offered to pay 1.85 billion dollars fror Cadbury Schweppes' soft drink brands in every market except the United States, South Africa and France. Mexico overtook the U. S. last year and became the country with the highest per capita consumption of Coca-Cola products in the world. In 1998, Mexico's consumption averaged 412 8-ounce servings per person, compared with 395 in the U.S.. Coca-Cola has 88 bottling plants in the country, supplying 900,000 points-of-sale.
CEMENT PRICES
One of the country's largest cement manufacturers, Grupo Cementero de Chihuahua (GCC), reported that its first quarter sales were up 10.5% compared with 1998, mainly due to increased cement prices. On the domestic market, a ton of cement now costs almost 100 dollars, 15% more than a year ago, while in the U.S. cement prices have risen 7% over the same period to about 80 dollars a ton. 34% of GCC's production is in the U.S. and 66% in Mexico.
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© 1999 Operadora de Fondos Lloyd, S.A.
© 1999 Allen W. Lloyd, S.A. de C.V.