Market Intelligence Briefing

Transcription

1 Market Intelligence Briefing Maritime & Trade Mexico Tuesday 23 rd May 2017

2 Introducing IHS Markit We are a global information and analytics company addressing strategic challenges with our interconnected capabilities AUTOMOTIVE ENERGY CHEMICAL FINANCIAL MARKETS DATA & SERVICES ECONOMICS & COUNTRY RISK ENGINEERING & PRODUCT DESIGN AEROSPACE, DEFENSE & SECURITY OPERATIONAL RISK & REGULATORY COMPLIANCE MARITIME & TRADE DIGITAL & WEB SOLUTIONS TECHNOLOGY, MEDIA & TELECOM

3 M&T s unique data assets provide governments and commercial customers with access to the most comprehensive insights News and Editorial Content AIS Ship Movements Consulting and Customised Research Global Trade Statistics MARITIME & TRADE US Bill of Lading Industry Forecasts Ship Data Industry Events

4 Across our business we serve a variety of customers including: IHS Markit Largest US Corporates (94/100) Fortune Global 500 >85% Largest automobile companies (10/10) Hedge Funds Global Asset Managers Investment Banks 50/50 G20 Governments (20/20)

5 Across our business we serve a variety of customers including: IHS Markit Largest US Corporates (94/100) Fortune Global 500 >85% Largest automobile companies (10/10) Hedge Funds Global Asset Managers Investment Banks 50/50 Maritime & Trade Division G20 Governments (20/20) MARITIME & TRADE 19 /20 10 /10 18/ / 20 8 / 10 7 / 10 Largest Chemicals Companies Integrated Oil & Gas Companies Largest Marine (Shipping) Companies Largest Industrial Conglomerates Largest trading and distribution companies Top steel companies

6 6 Political context and prospects

7 7 US Mexico state of play

8 8 Issues at Stake Trade U.S. goods and services trade deficit with Mexico: $49.2 billion in % of U.S. Trade Deficit Mexico exports to US: 81.24% of total exports in U.S. Trade Jobs with Mexico : 700,000 (1973) 4.9 million (2015) 2nd largest market for U.S. exports 3rd largest market for U.S. Agriculture Integration of production lines Digitalization and automation Migration & Security 1.1 Million fewer undocumented Mexicans since million Central American Immigrants reside in the U.S. (2015). 165,000 Central American deported at the Mexico Southern Border (2015). 2,153 Central Americans deported from the U.S. (2015). The Wall: 650 miles built, of the 2,000 mile border. Heroin and other drugs Guns and money to Mexico; terrorism Source: USTR (2015); United States Census Bureau (2016); American Community Survey (2015); The Pew Research Center (2015); Migration Policy Institute (Sept. 2015); DHS Yearbook of Immigration Statistics (2015); New York Times (Jan. 2017)

9 9 Setting the table Trump White House: > V.P. Mike Pence > Advisor Jared Kushner > NTC Peter Navarro Agencies: > State: Rex Tillerson > Commerce: Wilbur Ross > USTR: Robert Lighthiser > Defense: Jim Mattis > DHS: John Kelly Peña Foreign affairs > Luis Videgaray Economy > Idelfonso Guajardo Interior > Miguel Angel Osorio > CISEN: Eugenio Imaz > Undersecretary of Population, migration and regulation: Humberto Roque Defense: > General Cienfuegos

10 10 Border adjustment taxation and possible trade policy changes in the US

11 11 A pickup in US real GDP growth will lead to further declines in the unemployment rate

12 12 US economic growth by sector

13 13 US policy assumptions in the IHS Markit s forecast A reduction in the statutory corporate income tax rate from 35% to 20%, partially offset by fewer tax credits, starting in January 2018 > No border adjustments > No expensing of capital expenditures > Repatriation of $800 billion of foreign profits at a reduced tax rate of 10% in 2018 Personal income tax reforms that lower the average effective federal tax rate from 21.0% to 19.5% starting in 2018 Federal Reserve policy rate increases of 75 basis points in each of the next three years, bringing the rate to a long-term equilibrium of 3% An increase in public infrastructure investments totaling $250 billion over 10 years No major changes in healthcare or international trade policies

14 14 US Real GDP growth in alternative scenarios Strained relations with Mexico and China could bring recession in the US

15 15 Exports of goods to Mexico as a percent of gross state product: Texas, Arizona, and Michigan led in 2016

16 16 Imports of goods from Mexico reflect industrial supply chains (Percent of gross state product, 2016)

17 17 The House Republicans plan for US corporate tax reform: A border-adjusted cash-flow tax The principal goal of US corporate tax reform is a reduction in the federal corporate tax rate from 35% to 20% to improve international competitiveness. The House Republicans plan would transform the corporate income tax into a destination-based cash-flow tax that exempts the full value of exports but includes the full value of imports in the tax base. This is essentially a tax on domestic consumption. It differs from a value-added tax (VAT) by allowing a deduction for domestic wages and salaries resulting in a smaller tax base. Proponents claim that border adjustment would raise tax revenues (about $100 billion per year), helping to finance a reduction in the corporate tax rate. Opponents claim that it would raise prices of many consumer goods (food, gasoline, and clothing) that have a large import content. A major uncertainty is the extent to which the dollar would appreciate to offset the price effects from border adjustment. Bottom line: BAT most likely not to pass in its current form due to strong opposition.

18 18 The US president has broad powers to regulate international trade under existing statutes NAFTA Implementation Act of 1993: Withdrawal with six months notice, return to Most Favored Nation (MFN) tariffs, additional duties after consultations with Congress Trade Expansion Act of 1962: Impose tariffs or quotas after finding that imports have an adverse impact on national security Trade Act of 1974: Impose tariffs up to 15% and/or quantitative restrictions for up to 150 days against countries with large balance of payments surpluses; broad discretion if a country carries out practices that are unjustifiable, unreasonable, or discriminatory Trading with the Enemy Act of 1917: In time of war, powers to regulate international commerce, freeze/seize foreign-owned assets International Emergency Economic Powers Act of 1977: In a national emergency, powers similar to 1917 act Source: Peterson Institute for International Economics

19 19 US/Mexico relations: why should you care? US policies will shape Mexico s economic outlook Mexico is linked to the US economy through trade, capital inflows, and remittances. About 80% of exports go to the United States. Near-term uncertainty will delay capital spending in Mexico. A major increase in trade restrictions would send Mexico into recession in The Bank of Mexico is raising interest rates to stabilize the peso and restrain consumer price inflation, which climbed to 4.9% year on year in February. Global automotive and chemical companies are investing in new capacity in Mexico. Light vehicle production is projected to increase from 3.5 million units in 2016 to 4.1 million units in 2017 and a peak of 4.8 million units in President Enrique Peña Nieto s popularity has plummeted, hurting the ruling PRI s prospects in the July 2018 presidential election.

20 20 US-Mexico trade at a glance

21 Billions of USD 21 A significant trade deficit for the US, indeed However, since 1993 US exports to Mexico grew faster than to any other market Source: IHS Markit Global Trade Atlas US Mexico Trade in Goods Trade balance US Imports US Exports

22 22 US-Mexico containerized trade on the rise US TEU imports from Mexico growing faster than exports US-Mexico TEU Trade (In thousands) Source: IHS Markit PIERS 100 Most of the trade is cross border (rail and truck) but maritime trade has increased at a respectable pace Over the last 5 years, US TEU imports from Mexico grew at a CAGR of 18% Heavy investments in Mexican port infrastructure US Imports US Exports

23 23 Trade is substantial in the transportation, auto sector Motor vehicles and parts account for 30% of the Mexico-to-US trade Top US imports from Mexico, 2016 Transportation Equipment and Parts Computers, Office, Communications, Motor Vehicles Machinery and Electrical Equipment Parts of Motor Vehicles Billions of real USD Top US exports to Mexico, 2016 Computers, Office, Communications, Transportation Equipment and Parts Telephones, Microphones, Etc. Aircraft and Parts Chemicals and Related Products Billions of real USD - 40 Source: IHS Markit World Trade Service

24 24 Challenges to the automotive industry 1. US economic outlook and its impact on the Light Vehicle market > Sustainability of 17 Million units > Tax policy (Corporate and Income) changes > Oil prices/interest rates > Trade and/or Legislative changes 2. Impact to automotive trade flow if changes to NAFTA take place > Vehicles > Components > OEM and Supply Chain > Who really wins / loses 3. Light vehicle NAFTA production to grow 6% from 2016 to Mexico production to grow 31% and total 4.6M units by 2023

25 25 Mexico Production as % of US Sales: Who is Exposed?

26 26 Trade milestones for NAFTA (Automotive) US has officially approached Mexico, stating a need to review NAFTA. US Priorities Potentially raise regional content (presently 62.5%) Inclusion of some duty/border tax for components (industrial and manufactured) Remove legal clause that allows investors/companies in MEX/CAN to sue US investors/companies > Mexican Priorities Improve/ease trade flow from Mexico to US/CAN Remove imports of used cars If negotiation fails then US/Mexico could go to MFN/NTR status 180 days after US notifies Mexico of its intent to leave NAFTA. US/Mexico can use a national security threat clause to terminate NAFTA immediately. Automotive industry is rattled by the possibility of even further steps by the US such as a 35% duty on CBUs and/or 20% BAT (Border Adjustment Tax).

27 27 US-Mexico strained relations scenario: challenges and opportunities

28 28 How could US-Mexico trade relations get strained? The construction of a border wall Border adjustment tax Tariffs US withdrawal from NAFTA What to do to minimize risk? > Market diversification

29 29 There is no replacement for US demand at sight US market size is substantial at 81%, not easy to replace by any other market Top markets for Mexican goods, 2016 Germany 1% Canada 3% China 1% Japan 1% Others 13% United States 81% Source: IHS Markit Global Trade Atlas

30 30 Opportunities for Mexican exporters: China Mining, chemicals, and transportation present most opportunities Top China Imports, 2016 Energy and Mining Machinery and Electrical Equipment Crude Petroleum Chemicals and Related Products Computers, Office, Communications, Electronic Valves, Tubes, Metals and Metal Products Transportation Equipment and Parts Billions of real USD Top Mexican Exports to China, 2016 Energy and Mining Transportation Equipment and Parts Motor Vehicles Ores, Non-Ferrous, excl. Manganese Chemicals and Related Products Computers, Office, Communications, Metals and Metal Products Millions of real USD 0 2,000 4,000 Source: IHS Markit World Trade Service

31 Millions of kilograms 31 Avocados: China is a market ripe for growth China s avocado imports on the rise China s avocado imports by volume increased six-fold in only the last 2 years Mexico s avocado exports to China have substantially increased in recent years. Mexican exporters now facing strong competition from Chile and Peru In 2016, Chile was the top supplier of avocados, accounting for 46% of all China s avocados imports, whereas Mexico and Peru took 40 and 14% of the import trade, respectively China s avocado imports by sourcing country, China s population: +1 billion. Mexican exporters should focus on expanding this market Mexico Chile Peru Source: IHS Markit Global Trade Atlas

32 Millions of Kilograms 32 Mexico heavily exposed to US corn supply Mexico s corn imports by sourcing country More than 98% of all Mexico s corn imports are supplied by the US Mexico s demand for Argentina s corn increased significantly in the last 2 years Mexico will likely import a record amount of yellow corn from Brazil this year Chile could also be another good source of corn US Argentina Brazil

33 Billions of real USD 33 Pacific Alliance: Mexico, Colombia, Peru, Chile Trade growing at respectable pace Mexico goods exports to Pacific Alliance, F Alliance members account for nearly 36% of Latin America GDP. In May 2016, the Pacific Alliance removed 92% of tariffs on goods traded between members. Based on a 2013 agreement, the rest of the tariffs will be removed by 2020 Panama and Costa Rica are in the process of becoming full members. Mexico goods exports to the Alliance members will have grown at a CAGR of 4% between 2012 and F Source: IHS Markit World Trade Service

34 34 The Pacific Alliance (PA): Opportunities Chemicals, transportation equipment and parts pose greatest opportunities Top PA (exc. MX) Imports, 2016 Chemicals and Related Products Energy and Mining Transportation Equipment and Miscellaneous Machinery and Electrical Goods not classified by kind Computers, Office, Communications, Billions of real USD Top Mexican Exports to PA, 2016 Transportation Equipment and Parts Motor Vehicles Computers, Office, Communications, Chemicals and Related Products Radio and TV Machinery and Electrical Equipment Metals and Metal Products Billions of real USD 0 2 Source: IHS Markit World Trade Service

35 Key Takeaways US/Mexico trade war unlikely as both nations have a lot to lose Border adjustment tax unlikely to pass in its current form due to strong opposition New Trump administration is looking to renegotiate NAFTA deal, and Mexican exporters/importers should prepare by diversifying markets In the long run, China can pick up some of the slack: very large population 35

36 36 How do we define Mexico Auto Market

37 37 How has NAFTA Impacted Mexico Auto Exports

38 38 What is 20% of Mexico Exports to the US is Representing of the Total Market

39 39 Increased Costs for Seaborne Trade?

40 40 How has NAFTA Impacted US Imports of PVs

41 41 BREXIT Britain + EU27 Trade Imbalance Beef Situation Mutton Quotas

42 42 Britain to EU27 Total Trade vs Share of Global Trade

43 43 UK Global Exports of Beef Products

44 44 Where does the EU27 source their beef from?

45 45 TPP Regional Market Share, Top Commodities, Impact of US Exit

46 46

47 47

48 48 US Polypropylene Exports Emerging markets in a declining market

49 49 The declining US Polypropylene Market

50 50 Decreased volumes for Gulf and PSW Ocean Carriers