Storage Company Diversifies Amid Difficult TimesWed, 01/18/2017 - 23:33
Q: How has Consorcio Emcro’s strategy developed amid the industry downturn of the past few years?
A: Since our last interview, some changes have taken place at Consorcio Emcro. Our core business remains the leasing of over 1,200 metallic containers and 30 mud tanks but as we continue to diversify we started manufacturing bulk barite units. We also started the construction of a 4,000m3 fluids plant, which was initially requested by a client. Unfortunately, the low oil price situation forced it to cancel the project but Emcro decided to continue constructing the plant. We expect it to be finalized by June 2017. Since it is no longer being developed for that client we can either lease it to an interested company or offer the services on our own. Despite many companies being reluctant to invest in these uncertain times, Consorcio Emcro is willing to take a risk and bet on the market.
Q: How will Emcro further diversify to succeed in 2017 and what challenges will it face in the coming year?
A: One project we are undertaking is to develop the layout and financial projection of a solvent extraction plant for a company that owns a patent to reduce waste water in oil recovery to 1 percent. This process would raise the Mexican mix price by around US$4/b, which is hugely beneficial for operators. Our competitive advantage allows us to take on these projects and continue Emcro’s expansion. Despite the investment risks, we have high expectations for 2017. We hope to finish the construction of the fluids plant and either offer it to a third party or to run it on our own and break into the fluids production business. Containers and mud skips remain Emcro’s core business, where we have around 40 percent of the market.
Q: How has Emcro’s competition evolved in Mexico and what is its strategy for protecting its position in the market?
A: We have increased our position since 2015, after one of our competitors exited the container leasing business. Three companies remain in the market, including Emcro. Although we improved our position, our sales revenue fell, with only 40 percent of our containers occupied. PEMEX’s reduction from 80 to 18 operating platforms had an enormous impact on the whole sector. The drop in oil prices forced Emcro to become more competitive. Being active in oil and gas summits, we discovered that incoming international companies will demand safety certifications beyond those of PEMEX, so we decided to focus on going beyond the NOC’s norms of reference and get API (American Petroleum Institute) certifications, which are the highest international standards for drilling equipment.
Another issue that needs to be addressed is that Round One-winning companies outsource services from large fluid companies that have worked in Mexico for many years, despite those businesses not being compliant with the highest international safety standards, although their prices are slightly lower. Regulators such as ASEA or CNH must be vigilant and verify that national content requirements are being met.
Q: What competitive advantage does Emcro offer to incoming international companies?
A: We offer cost-effective solutions with the same or better quality than our international competitors but with better service. We expect our capacity to grow with our fluids plant. It is challenging to acquire a potential client’s trust, which is the main step in building a long-term relationship in the industry. We have infrastructure near Dos Bocas, where we are well known, and have the transportation capacity to develop and deliver projects on time. We have the expertise and knowledge of the national market and the way it operates to ensure maximum competitiveness.
Q: What are Emcro’s expansion plans and expectations?
A: From 2007 to 2016 we had a continuous rate of growth over 100 percent yearly and then suffered a yield decrease of 30 percent. We think we can return to yield growth for 2017 if oil well drilling increases again, as well as with the evolution of the fluids and solvents plants. We expect the next five years to be crucial to our development. It is a difficult process as price margins have shrunk and payment dates have been pushed from 60-day contracts to 120-day contracts.
We have struggled for a couple of months but have been supported by our suppliers and have in return supported our clients. Emcro has decided to reinvest everything it earns because it has detected an opportunity in the low-price context. The opportunity to invest in steel products before any big price rise is now