Mexico Expects Greater Growth
“Mexico is open to new technologies,” says Lothar Kahl, Bayer resins and pigments division’s technical manager in Mexico. “The economy is constant and is constantly growing. Demand for higher quality coatings is increasing tremendously. We expect to grow with the market in high-solids and waterborne systems.” Kahl was one of over 2,000 professionals attending the Latin America Coatings Show held in August in Mexico City. The show was sponsored by ANAFAPYT, the Mexican paint and coatings association, and DMG Business Media.
Last year, Mexico surpassed Japan as the second-largest trading partner of the United States. Among U.S. trading partners, Mexico is the fastest-growing export market with about $58 billion in exports and a growth rate of 13.5% from January to September 1998, according to the U.S. Commerce Department.
At present, Mexicans do not use a lot of paint when compared to their Northern neighbors. But with the rise of the middle class and increase in new business opportunities, especially in Mexico City, Monterrey and Guadalajara, the paint market is expected to nearly double by 2005 (see Table).
Mexico consumed about 420 million liters of industrial and architectural paint last year, an increase of 10% from 1997, according to Esteben Pérez Martínez, Bayer de Mexico resins and pigments technical sales manager (Mexico City). “The 10% increase was surprising because people were expecting only a 4–5% increase,” he says, adding that the general health of the economy helped to boost sales.
Suppliers say the economic crisis drove many regional paint companies out of business. “It took the industry four years to achieve the levels of production that it had before the devaluation,” says Jaime Lezama del Valle, resins director at National Starch & Chemical (Mexico City). “The economic situation is certainly better now than it was in previous years, and we expect this to continue.” Like other suppliers to the region, he says the Latin America economy seems to be stabilizing and that Brazil is making a quick recovery from its economic devaluation earlier this year.
“This is a waiting market,” says Angel Rivera, Mexico sales manager at UCB Chemicals (Tlalnepantla). “It is like any other country in Latin America. There are households that are not painting, but this will change as the economy improves.”
Rivera estimates that about 50% of the industrial and about 40% of the architectural paint market is in Mexico City. He adds that while the nation’s capital is growing with new investment, the Mexican government is trying to spread the wealth and benefits around the country by providing incentives for industry to move outside of the city to other industrial areas.
Comex (Mexico City) dominates the national market. The privately owned national company is a leader in decorative trade sales. The company says it commands more than 40% of the national market. Comex also operates retail outlets nationwide, offering customers a variety of products and services, including color-matching capabilities.
Other national firms include Pinturas Osel, which reportedly claims about 10% of the national architectural market. But most of the Mexican paint market is fragmented, consisting of about 200 companies, mostly small and mid-size businesses. Matt J. Russ, Eastman Chemical business director for the Americas (Coral Gables, FL), says that much of Latin America’s paint technology originated in the United States or Europe by way of licensing agreements with major paintmakers. “A bunch of local companies got their technology 20–30 years ago from a Sherwin-Williams or an ICI, which at the time didn’t necessarily have an eye on Latin America,” he says. Today many of those long-term relationships helped to facilitate acquisitions by the multinationals who have been expanding and aggressively buying market share throughout Latin America.
Many multinational paintmakers have production facilities in Mexico. These include BASF, which, for example, has two automotive refinishing plants in Mexico; and PPG, which has an automotive OEM and industrial coatings facility in San Juan del Rio. Valspar has an industrial coatings operation in Monterrey and a packaging coatings plant in Mexico City. Akzo started up a new transportation coatings facility last year in Garcia in the state of Nuevo Leon. Lilly Industries expanded its presence last year by purchasing Pinturas Dygo, an industrial coatings firm in Monterrey.
DuPont Performance Coatings (Wilmington, DE) is closing its Ocoyoacac facility and moving some production to Tlalnepantla, near Mexico City. The plant, formerly owned by Herberts, is one of six coatings facilities worldwide that DuPont plans to close as it consolidates operations in other locations. Consolidation at the plant is expected to be completed as early as year’s end.
While suppliers are following industry, many do not have facilities in Mexico. Many use distributors, or partner with suppliers that have established distribution channels, says Steven J. Rotz, Lubrizol product manager for coatings additives. Lubrizol (Wickliffe, OH), for example, exports its products from the United States and distributes additives in the NAFTA region for Efka, a Netherlands firm.
From GE to Whirlpool, Mexico has a large share of production facilities for major OEMs, but it is the automotive industry that keeps paintmakers particularly busy. Major car makers in Mexico include Volkswagen, which exports all of the new Beetles and other models from its factory in Puebla. General Motors, Ford, Chrysler and BMW have production sites in Mexico as well.
“These are signs from companies in the U.S. and Europe that Mexico is a developing country with high technology and technicians,” says Kahl. Bayer is investing in new technology at its organic pigments plant in Lerma, near Toluca, an investment program it expects to complete in early 2000.
Paint making is concentrated in Mexico City, which is notorious for its air pollution. Nationwide, however, Mexico faces severe environmental degradation. The North American Free Trade Agreement (NAFTA), now in its fifth year, and other environmental pacts established alongside NAFTA helped to focus world attention on the country’s pollution problems and created a system intended to help find environmental solutions. Industry suppliers credit the agreement, which establishes closer economic ties among the United States, Canada and Mexico, with greatly expanding regional trade opportunities. But some expressed frustration over the slow rate of progress on the environmental front, especially in light of the fact that they are investing heavily in state-of-the-art environmental paint technologies.
One supplier said that early opponents of NAFTA were right in asserting that rapid population growth and industrialization would produce an even greater environmental strain on a country with little or no water-treatment systems or air-pollution controls. Air and water pollution remain severe problems, especially along the heavily industrialized 2,000-mile border shared with the United States. The Mexican government is trying to address such issues, say suppliers. For example, the government is building water-treatment facilities along the border and has created environmental programs, such as voluntary audits, designed to help companies clean up operations.
But suppliers say one of the most visible signs that the government is taking environmental matters seriously is its improved enforcement of environmental regulations. A recent example is Pigmentos y Oxidos, SA (Pyosa), a leading colorants and inorganic pigments producer to Latin America. Suppliers say that earlier this year the Mexican government forced Pyosa to close its Monterrey facility for serious environmental violations involving air emissions and water pollution.
“What NAFTA brought to the paint industry here is more variety of products, ingredients and equipment. With NAFTA more companies are investing here and modernizing equipment. It has brought a greater variety of paints,” says Lezama del Valle.
Mexico’s strong ties with the United States and Canada through NAFTA helped provide a degree of insulation against the Brazilian economic crisis earlier this year, says Ronald J. Regan, Eastman coatings, ink and resins sales director (Coral Gables). While all of Latin America including Mexico was affected by the crisis, the Mexico economy did not sink as low as was expected because it could rely on U.S. exports. “Mexico recovered so well that we continued to have growth,” he says, “and so the influence that NAFTA has had here cannot be underestimated.”
“The Mexican people are more aware of taking care of the environment now than they ever were before,” says Humberto Cortés, Eastman sales manager for new markets (Mexico City). Evidence of this may be the rise in numbers of environmental engineering firms and consultants in the region.
Keith R. Harshey, Air Products and Chemicals’ Latin America business manager (Allentown, PA), says Mexican product development is following trends North of the border toward more waterborne and higher-solids formulations. The difference, he adds, is that customers are working in these areas now “they are not necessarily being pushed” to do so. As U.S. and European multinationals standardize formulations, Mexicans “know down the road they are going to have to and so they are starting to do this now.”
Jaime Lomelin, Latin America market manager for polymers at Air Products (Mexico City), says several trends are emerging in the industry, beginning with consumer demand for quality and greater pricing flexibility. “The Mexican market is moving away from the peso-per-bucket mentality,” he says, adding that consumer demands for paint are becoming more sophisticated. He says it is becoming more common to find paint buyers who, for example, consider performance requirements of the coatings. A construction company or hotel chain specifying paint today is likely to consider factors such as performance in wet or dry climate conditions or scrubability over pricing, he says. Typical demands from paint consumers involve better gloss and stronger colors, he adds.
In the ink market, Mexico City is a hot spot. Major producers include Sanchez (Mexico City), Flint Mexicana (Mexico City) and Sipa (Japan).
Sun Chemical (Mexico City) does 60% of its business in the ink market, the primary consumer of organic pigments in Mexico, says Roberto Alc