Natgas prices risk thousands of Mexican jobs-poll

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Natgas prices risk thousands of Mexican jobs-poll Reuters Company News - November 03, 2000 20:44

By Adriana Barrera

MEXICO CITY, Nov 3 (Reuters) - High natural gas prices are threatening to close down some 210 Mexican firms and put hundreds of thousands of people out of work, a survey by a Mexican industrial organisation showed on Friday.

The survey, taken among 300 medium-sized firms nationwide, found that 42 percent of the companies surveyed consider a reduction of their workforce "practical" to offset hefty production costs due to high natural gas prices.

"Around 88,000 jobs are expected to be directly affected and 440,000 indirectly, and 210 firms are threatened with closure due to the impossibility of absorbing the increase in the cost of production," said the survey, carried out by the National Transformation Industry Chamber (Canacintra).

The rise in natural gas prices, which have soared on a par with oil prices, has taken a toll on Mexican firms that use the gas as a fuel or raw material.

The price of natural gas is currently around $5.0 per million BTU (British thermal units) compared with $2.22 in 1999.

The study said the impact on production chains, cuts in programmed investment or the need to switch to another, cheaper fuel were factors that would have repercussions on jobs.

At the end of September, steel firm Hylsamex , a unit of industrial conglomerate Alfa , partially suspended mining and other operations because of high natural gas prices, affecting 1,250 jobs directly and another 6,000 indirectly.

High natural gas prices hit Alfa's third-quarter results. The company reported a 20 percent fall in its operating profit to 1,205 million pesos ($130 million), compared to 1,503 million in the same period of 1999.

Indebted steelmaker Altos Hornos de Mexico (AHMSA) also saw its operating profit fall, dropping 38.4 percent in the third quarter to 205 million pesos, against 332 million pesos in the year ago period.

URGENT NEED FOR GOVERNMENT SUPPORT

Mexican firms have repeatedly requested an emergency aid plan from the government but with no result as yet.

Until now, state monopoly Petroleos Mexicanos (Pemex) has offered discounts to companies that hedge against price swings -- protecting themselves by taking out options or other derivative instruments.

Mexican authorities and industry are currently studying an emergency plan for the winter which would take as a base a price of $3.5 per mBTU during that period and thereafter the price difference with the market would be paid in deferred payments over the following months. The industry has demanded the government subsidise natural gas at a $3 per mBTU fixed cost.

The study said that Pemex will receive around 40 billion pesos from the companies, which "represents unprecedented gains despite its lack of investment in extraction and poor maintenance of the distribution network of gas pipelines."

Pemex is the only provider of natural gas to Mexican industry.

Mexico, the fifth biggest oil producer in the world, produced 4,656 million cubic feet per day (cfd) of natural gas in September, according to the latest official data available, representing a drop of 95 million cfd compared to August.

Imports were 236.2 million cfd, down 15.1 million cfd from August.

Industry firms believe that the lack of competition for Pemex has affected the firm's efficiency and contributed to elevated fuel prices.

"The legal structure for taking decisions on energy prices needs to be changed," the survey said. $1=9.64 pesos

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-- Martin Thompson (mthom1927@aol.com), November 04, 2000


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