Pioneers in Mexico’s LPG cylinder manufacturing

Mexico

Arturo Méndez Hidalgo, CEO of Armebe y Menher, talks to The Energy Year about competition in the LPG cylinder manufacturing environment in Mexico and the company’s strategy for growing its market share locally and abroad. Armebe y Menher fabricates fixed and mobile LPG cylinders.

What is the company’s position in the market?
We were pioneers in the design and fabrication of LPG cylinders in Mexico, with our Metálicos Armebe plant set up in 1947 and our Tanques Menher plant in 1979. Today we have a market share of around 33%, and we have the best teams doing design, production, testing and distribution of gas tanks and cylinders nationwide. We have also developed a tailor-made approach where we craft products according to the needs of clients.
All of the products we offer to the market are made out of steel, and finished with coated paint. We also obtain our raw material nationally from local firms such as Ternium and Altos Hornos de México. The quantities of steel we buy from our suppliers will depend on the contracts we have, but stand at around 1,500 tonnes monthly. As for products, we fabricate mini-tanks of 10 different sizes; portable cylinders of 10 kilos, 20 kilos, 30 kilos and 45 kilos; fixed domestic tanks; stationary tanks; and storage tanks.

What is your tank and cylinder fabrication capacity?
As of today, we are manufacturing between 25,000 and 30,000 cylinders a month. The government has been giving us a lot of work lately. This is in response to the recent creation of a state-owned LPG company called Gas Bienestar. The firm needs thousands of cylinders and we, along with other local cylinder manufacturers, are fabricating them to cover their needs. For Pemex we were until recently producing a total of 50,000 cylinders a month – around 25,000 done by Menher and another 25,000 done by Armebe.
In addition, we manufacture stationary tanks – approximately 4,500 a month. These tanks range from 100 to 5,000 litres. As a rule, up to 5,000 litres is considered a stationary tank, and those that have more capacity are labelled storage tanks. We also offer these tanks for industries. Thus, while our company Tanques Menher focuses on tanks, our other firm, Cilindros Meba, fabricates LPG cylinders.

How competitive is the cylinder manufacturing environment in Mexico?
It’s a difficult landscape to compete in. Normally, the profit margins are small because it is a commodity, it is a product that is manufactured under certain rules, we all have to make them the same way. You can’t make a square tank, for example. Secondly, the end consumer is driven by low prices so it becomes a question of who offers the cheapest option.
In other countries we find the problem of foreign competition – that is, low-quality cylinders imported and sold in the local market at much lower prices. This also leads to safety issues. In Mexico, this happens as well but does not pose a great problem since we work with small margins and foreign players have a hard time entering the market. Currently, the smallest ones – the 10-, 20- and 25-kilo cylinders – are the ones entering from China.

What steps has the company taken to consolidate its exports across the Americas?
In 1995 we started our exports of cylinders, beginning with Central America. In 2005, we opened the North American market – the US and Canada – and in 2010 we started exporting to Latin America at large. We worked a lot for Colombia for a couple of years because its government implemented a cylinder replenishment programme. Companies were told to pay half the price, and the government would pay the rest. Since local firms did not have the capabilities, three large Chilean companies took over the gas distribution market in Colombia, and all of them requested our services. In a timespan of two years, we managed to send approximately 1 million cylinders.
Currently, 20-25% of our production goes to the US. In fact, in recent months around 50% has been sent there. Our business with the US is periodic, and has grown now that we are on a break with Pemex. The previous contract with them ended so we have deviated our production to cater to the US market. We are looking to sign a new contract with them. In any case, when our business declines in Mexico we compensate with exports. The export business has been growing rapidly and we have managed to consolidate ourselves well in the US.

How key is your distribution line of business?
In Mexico we mainly work with gas distributors, who are key clients for us. Some of these clients are Gas Express Nieto, Global Gas and Gas Metropolitano. For them, we fabricate cylinders, stationary tanks, cargo tanks and even large cargo tanks. We also work with ironmongers. In addition to this, we work directly with two of Pemex’s plants. Pemex buys directly from us, and we make sure we send the material to their refinery in Hidalgo. We do this with our own fleet of 8-10 vehicles.
Moving forwards, given the instability of the market, we would rather focus on exports. The opportunities in the US market are huge and there are larger margins to be made. Despite Mexico being our home ground, there is a lot of competition and it is difficult to make profitable margins.
Therefore, we are now focusing on markets where the demand for tanks and cylinders is increasing rapidly, especially the US and Canada.

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