MARTÍN TOSCANO

Mexico 2021 | INDUSTRY | VIP INTERVIEW

TBY talks to Martín Toscano, President & General Manager of Evonik, about demand growth in the chemical industry, the experience of 2020 and the pandemic, and goals for the coming year.

What factors are behind the strong levels of growth in demand the chemical industry is observing despite lockdown?

Globally, figures for the chemical market for 1Q2021 are the highest in probably 10 years, driven by improved expectations and demand. Business expectations have been increasing steadily since January 2021. ACC (American Chemical Council) data of global chemical production shows increases since January 2021, and China is up 17% year-on-year, Europe up 12% and, while the US is also showing meanwhile strong recovery, they are still lagging probably -1 or -2% year-on-year due to the still depressed oil industry. Driven by positive news around COVID-19 vaccinations, some degree of economic normalization is expected for the 2nd half of 2021. These positive trends in chemicals are already visible, and the risk of a potential downswing should be limited. We believe we are about to see a steady recovery going forward. The good news for Mexico would be that US expects a fast recovery, caused by its fiscal response and aggressive rollout of vaccines, and industry shows positive momentum, services also look promising, and household income in 2020 is higher than 2019, with a higher saving rate (10 % higher than average of last 20 years and the highest since WWII). Just recently, we heard about an expected GDP by year end will at 5 to 7% for US for 2021. Outlook for 2021 is a 3.5 – 4.0% GDP growth in Mexico, where all sectors and markets actively participating in exports would show significant growth while the ones associated to the domestic market would get weaker. We do expect an increase in exports to support the recovery of the US economy and the uncertainty of the commercial policies in the region disappear with the implementation of the new North American free trade agreement. The economic stimulus is a boost for Mexican exports. On another side, current recovery is being challenged by supply chain interruptions, increasing delivery times and prices.

What do you consider having been Evonik's greatest achievement in Mexico of 2020?

Evonik survived the pandemic well, especially here in North America. The company achieved its financial targets, and production and logistics have been secured globally and all measures to protect the health and well-being of our employees have been consistently implemented. For 2021, the company will continue his growth journey and agenda. In Mexico, we are showing consistent strong results in 2020 versus previous year volume-wise and achieving higher turnover due to organic growth, execution of ongoing projects with customers locally and the further integration of acquisitions made by the group recently. We have successfully overcome the crisis and we have delivered. During 2020, from the beginning of the COVID-19 pandemic, the chemical industry in Mexico was regarded as essential, giving us the opportunity not only of focusing on our employees and their families but also our customers, their needs and how we could team up to develop a more collaborative strategy along the value chain we participate in. Despite the new virtually-driven reality, we were closer to our team and our business partners more than ever supporting them, and we all together were able to execute our strategic agenda for Mexico. It became obvious, that in a crisis like this one, Evonik's transformation towards more specialty chemicals has paid off. A more resilient and diversified portfolio of specialty chemicals is certainly a reason for such strong results in Mexico. And we continue with our transformation process, which will generate further growth in 2021 and beyond, globally.

In what way is Evonik helping global partners start operations in the country?

Mexico plays a pivotal role for many of our local partners, but particularly for our regional and global business partners across several industries and market segments. Despite the ongoing COVID-19 pandemic, Mexico was the country that shows the least negative impact and decrease on direct foreign investment flow in Americas during 2020. Beyond the well known success stories around the automotive, aerospace, medical devices industries, among others, getting established in Mexico as global platform to serve regional and international markets is becoming a common strategy by several of the global players we serve around the world and now in Mexico. Making our products and technologies available to them locally and be ready to engage in more strategic discussions around local R&D, more Applied Technology projects for new products and applications, as well, as mentioned before, a more collaborative approach to innovation along the value chains, are just few examples on how we are leading beyond chemistry in Mexico.

What kind of changes have you implemented in your business model to adapt to the challenges of the new normality?

Like many others here, since March 2020, we are operating in Mexico on an adapted basis. While we keep our sites in Monterrey, Querétaro and Santa Clara running to guarantee our operations, we have implemented several other changes at those sites and at our corporate office to support our business lines and shared service organization to be safe, healthy and be able to run the business in the most efficient manner. Following our existing contingency plan, that we have implemented back in September 2017 in the aftermath of the last heavy earthquake in Mexico City, we were able to have our entire team operational remotely 24 hours after we decided to close our corporate office down. Our HR, IT and ESHQS teams, among others, did a terrific work in supporting and enabling our organization to keep operations running and be able to serve our customers properly. We have engaged in existing and new digital solutions internally for our processes and especially with our customers. Just as an example, we benefit from a massive global footprint of technical services experts and other valuable colleagues that were available now virtually to support our projects with our customers, allowing us to create distinctive value in Mexico. While we walk into 2021, we are following our own game plan and strategy for a safe and healthy return to work while we also attend the directions given by the local authorities in all places we operate in the country.

What kind of products or services do you plan to launch in the short to medium term in Mexico and why?

We will continue during 2021 executing our agenda through our business lines in Mexico, serving markets such as Agriculture, Health & Oral Care, Personal & Household Care, Automotive, Aerospace, Animal Protein & Food Safety, Coatings, Paints and Colorants, among others. Particularly in Mexico, due to the global manufacturing role that we play, the nearshoring of supply chains as consequence of the new free trade agreement with US & Canada and as part of the strategic repositioning of several players cross market segments as part of the COVID-19 pandemic risk mitigation, we are prepared to support our customers further. For Evonik Industries, globally, growth projects include the expansion of specialty lipids production, which are essential for mRNA-based COVID-19 vaccines. In addition to production in the USA and Canada, Evonik Industries is further expanding its production facilities at the German sites, which are expected to produce lipids in commercial quantities as early as the second half of 2021. Evonik's new production complex for Polyamide 12, used in growth markets such as 3D printing and in automotive and aerospace, will also be ready this year as planned. Mexico plays a very important role for those products.
Today Evonik generates around 35% of its sales from products that offer superior sustainability benefits to customers. In the field of future technologies, these so-called Next Generation Solutions are urgently needed in Mexico and globally. Evonik will continue increasing the proportion of solutions and business from these products in the coming years.

What are your main goals and priorities for 2021?

Our people, their health and wellbeing and safety in all our processes, remain a top priority while we continue navigating with our customers through the weather of the COVID-19 pandemic and the global supply chain challenges. And markets are recovering rapidly, which motivates us to continue working diligently. As we strive to become the best specialty chemicals company in the world, we are moving beyond chemistry. We are interlinking disciplines, skills, and perspectives with one another so that as a partner of our customers we can create value-generating and sustainable solutions. As a result, we play a leading role in our markets and in the development of our industry. The answer to the question of why we exist lies in the passion with which we provide our customers' products with special characteristics: in order to make people's lives better, day after day.