The "anti-huachicol plan" (anti-theft program) started by the new president of Mexico, Andres Manuel Lopez Obrador (AMLO), aimed at crushing the fuel theft problems in Mexico, is beginning to bear fruits, at least for the legitimate private fuel importers.
Mexico has to deal with the short-term pains of logistics and supply shortage issues resulting from the latest fuel-theft crackdown, but the country could benefit from long-term gains, with more opportunities for legitimate private fuel imports, Luis Calles, a partner at New World Fuel (NWF), a large private fuel and propane gas distributor in Mexico, told OPIS in an interview.
He said that there are visibly fewer competitors in the market now as the government continues to step up on stopping illegal activities in the Mexican fuel market.
"There were companies importing diesel fuel without paying the full tax amount (illegally), and they are now are more cautious in doing it or are lying low for time being," Calles said.
While illegal deliveries are slowing down, the legal import opportunities are increasing, thanks to the government's effort and the inefficiency of Pemex's logistics system, he said.
NWF, which was founded in 2013, first entered the Mexican marketplace by importing LNG truckloads. Thanks to opportunities arising from the energy reform, NWF has expanded to importing propane by rail.
The company is a major player in the Mexican LPG market, having imported over 200,000 metric tons of product in 2018 alone, NWF said. In 2019 it expects to import over 250,000 tons of LPG, adding to its significant presence in the refined products market, with volumes over 500,000 bbls in both trucks and rail. The company's sales volume in 2018 was 105.21 million gal. NWF has imported from 18 refineries/fractionators and distributed fuel to 25 locations all over Mexico.
The government's fuel-theft crackdown and widespread fuel supply shortages have demonstrated how fragile and sensitive the Pemex's logistics infrastructure is, Calles said.
"Retailers and wholesalers don't feel as secure now as they felt before in terms of a guaranteed supply from Pemex," he said.
As of today, there are still some Pemex wholesale fuel racks without any product available mainly in the central part of Mexico, Calles said.
This fuel supply shortage situation has led retail groups and wholesalers to look for alternatives with fuel importers, who can offer them a more secure and stable supply by truck or rail options, he added.
"The government has opened customs offices 24/7 in order to facilitate the flow of imported product and we have observed a spike in demand for rail cars and a shortage of trucks available to cross product from the U.S.," Calles said.
Apart from physical fuel supply shortages, Calles said that arbitrage economics for private imports are seen more favorable in this first month.
Higher overall Pemex fuel rack prices are also incentivizing Mexican buyers to turn to private importers.
Pemex rack fuel prices have increased by an average of Mexican 95 centavos per liter in one month, he said, adding that this significant price increase would have taken a few months in 2018.
It is noted that the IEPS tax has been slightly higher so far this year compared with last year, partly due to a lack of fuel subsidy. This is to relieve the financial burden of Pemex and the government.
The dynamics and correlations of the import flow changes and IEPS tax adjustments will pose the proverbial question of the chicken or the egg.
Calles said that the government might have increased IEPS tax because it wanted to maximize tax revenues or compensate for "lower" taxes last year as a result of a growing private import flow.
However, OPIS notes that it could be argued the higher private import flow is a result of the higher IEPS tax and Pemex prices.
Besides the IEPS federal tax, the government also increased the carbon, state, municipalities taxes. A tax increase is essential for the government to fund other strategic projects, but at the same time, AMLO has promised to keep gasoline prices low.
Calles said that there has been an increase in the number of retail groups now looking for alternative supplies to Pemex. There is an opportunity to offer better service, pricing and quality than Pemex to get supply contracts.
OPIS notes that the draw of private fuel supplies may be increasing, possibly signaling a growing trend in the Mexican market as more private logistics facilities are built, but many retailers continue to fear repercussions from Pemex if they do switch to private importers.
This fear may not dissipate until a more robust private logistics infrastructure is established. This may take a few years.
--Edgar Ang, eang@opisnet.com
Copyright, Oil Price Information Service
