An increase in coronavirus cases in Mexico's capital could lead to another national lockdown in 2021, dragging down demand for refined products.
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The Mexico City metropolitan area, with a population of over 20 million, on Dec. 18 announced it would ban all non-essential activity through Jan. 10 to prevent the spread of the coronavirus. A record number of cases have pushed Mexico City's health system to its limits.
According to data from Mexico's Health Secretariat, three out of 100 citizens in the capital have been confirmed to be infected, the highest rate in the country.
Yet, neighboring states have fewer restrictions in place. For instance, beach resorts have been well-populated in states on the Pacific Coast like Guerrero, Michoacan, Jalisco, and Sinaloa, largely with travelers ahead of the Christmas holiday.
If the number of cases increases in these neighboring states, another large lockdown similar to the one in April could be put in place, according to sources.
The government's decision in April to impose national restrictions led to a sharp contraction in demand. Sales of gasoline in the second week of April fell to 429,000 b/d, down from 860,000 b/d the previous year, Energy Secretariat (Sener) data showed. Diesel sales fell to 236,000 b/d in the second week of April, from 420,000 in 2019.
The economic impact in case of a second lockdown might not to be as sharp as the first, but it is likely to keep sales below current levels for at least the first half of 2021, said Santiago Arroyo, CEO at Ursus Energy, a consulting firm and fuel retailer.
"Demand will not stabilize at pre-pandemic levels before 2022 or 2023," Arroyo said, noting that the economy in Mexico was struggling even before the pandemic.
Mexico's gross domestic product (GDP) will contract by 9% in 2020 and only grow by 3.5% in 2021, according to the median estimate of 29 national and international financial institutions polled by Citibanamex.
The lockdown measures implemented by the Mexico City metro area add "downside risk" to growth estimates for both the fourth quarter of 2020 and the first quarter of 2021, Citibanamex said Dec. 21 in a separate report.
Pemex regaining market share
The lower demand during April led to a sharp reduction in Pemex imports, while private importers saw no variations in their volumes, Sener data shows.
However, recent regulations proposed by Sener could reduce the volume of fuels imported by private companies, allowing Pemex to regain market share when demand resumes, observers noted.
Sener recently proposed new rules and revisions that would limit the ability of importers to operate and compete with Pemex. For instance, Sener could deny a company the chance to use its import permit if Sener claimed there is too much product in the system, said David Rosales, senior consultant at Mexico-based Potenco.
"That could only go against the market," Rosales said.
The proposed rules have since been criticized by over 40 industry participants. Mexico's antitrust watch dog Cofece on Dec. 21 expressed its concern that if passed, the law would further hurt competition in the fuels market. Cofece, which has no veto power, recommended the proposed law be modified.