Mexico Fuel Retailers Struggle to Preserve Diesel Margins Under Voluntary Price Cap: Onexpo
Mexico’s fuel retailers are facing tighter margins amid the government’s recent voluntary agreement to cap diesel retail prices, with fewer than half of service stations nationwide complying with the measure, Enrique Félix Robelo, president of retailers association Onexpo, said Thursday during the group’s annual meeting in Merida.
More than a year after the government introduced a price cap on regular gasoline at 24 pesos/liter, fuel retailers had largely adjusted to the new pricing framework. Diesel, however, has placed greater pressure on service station operators to preserve profitable margins.
Unlike regular gasoline, a capped diesel price makes it more difficult for retailers to maintain profitable margins because most diesel volumes are sold to fleet operators on 30-60-day credit terms, increasing cash flow pressures and exposing station owners to greater financial risk, said the representative.
“In many cases, retailers must rely on credit just to keep their businesses operating, and that is where profitability takes a hit,” said Félix Robelo.
He added that fuel retailers currently earn a diesel margin of around 1.50 pesos/liter, although those returns are further reduced by transportation, storage and marketing costs.
The Mexican government reinstated fuel tax support, known as IEPS, for diesel and gasoline in March, but has yet to restore the 100% fiscal stimulus that retailers say would further cushion pump prices and improve profit margins.
“We are making every effort to keep diesel prices contained, as we have been asked to do,” Félix Robelo said. “This is expected to be a temporary issue driven by the conflict in the Middle East.”
President Claudia Shienbaum in April announced a voluntary agreement with nationwide retailers to sell diesel fuel at below 27 pesos/liter. Sheinbaum said the measure will remain in place until international market conditions stemming from the U.S.-Iran conflict return to normal.
Félix Robelo added that another challenge weighing on fuel retailers is that a significant share of diesel sales is processed through fuel card companies, which have yet to pass along reductions in bank commission fees that were promised to retailers.
In late April, the Mexican government announced an agreement to reduce the fees paid by gas station operators on credit card transactions from May 1 through Oct. 31, aiming to support retailers and help ease fuel prices for consumers.
Reporting by Karla Omaña, komana@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com