Privatisation top of the years agenda for Brazil and Argentina

27 January 1992 00:00  [Source: ICB]

The need for foreign investment and exports is the common link between petrochemicals producers in Brazil and Argentina. Bilateral trade between the two could come part-way to solving their problems, but the shift to private ownership seems destined to play a more major role. Flavio Salles reports.

THE BRAZILIAN thermoplastics market is expected to grow by 12% in volume terms in 1992 to 1.67m tonne, following a 16% increase last year. However, in value terms, companies in the chemical and petrochemical sector experienced a 10% reduction in turnover last year. due to the country's recession, high interest rates and price controls.

Exports, which last year reached 1.2m tonne, are expected to show a significant rise this year. Managers at several producers point to the necessity to ship more product abroad, above the historical level of 30% of production. Some are looking for a level of 40% this year.

Brazil: project status 1992
Company/type	Annual capacity   '000 tonne	Product	Investment $m	Completion
Copene/expansion	910	Ethylene	969.2	March/92
Braspol/new	150	PP	130.6	March/92
Poliolefinas/new	130	LldPE	1415	Q2/92
Politeno/new	130	LldPE	129.6	Q2/92
Coperbo/expansion	105	PB/SSBR	36.0	Q4/92
CIEK/new	25	Acrylic AC	100.0	Q3/94
Norclor/new	200	VCM/PVC	320.0	Q4/94
Source: Petroquisa

Brazil: basic petrochemicals market 1991 ('000 tonne)
Product	Production	Internal sales	Exports
Ethylene	1449.1	1322.6	4.6
Propylene
Chem grade	374.6	377.9	12.6
Poly grade	400.1	379.5	15.4
Butadiene	186.0	176.3	13
Benzene	551.0	429.1	118.8
Source: Petroquisa

The export strategy is in part an attempt to insulate basic and downstream petrochemicals production from the ups and downs of the domestic market. Besides polymers, producers are also looking to increase exports of finished plastics goods, which last year earned the country $170m.

Recession on the domestic market is expected to last throughout the first half of the year at least and this, together with world overcapacity and the freeing up of imports into the country, will lead the Brazilian industry to operate with idle capacity in the year. an unusual situation for it.

Domestic sales, usually lower in Q4, have also been poor over the first weeks of this year, giving rise to a belief that if the current economic policy is maintained, a true upturn will not be seen until 1993. The government is curbing spending to try and reduce the 20%/month inflation rate, while at the same time looking to keep taxes high and raise prices for energy.

Many of the major players face the need to restructure their debt profiles and there is the likelihood that national and multinational companies that do not do so will run into financial troubles this year. Some have already had to ask for capital injections from their overseas parent companies and others are looking at alternative ways of raising capital. These include issuing of commercial paper, as done by Ciba-Geigy and Dow, or export securitisation, as carried out by Copene late last year.

The economic conditions are limiting Brazilian companies' investment plans and there are no prospects for major petrochemical investments this year. The only exception is Rhodia, which has announced a $200m move to purchase Companhia Alcoolquimica Nacional and convert and expand its acetic acid (60 000 tonne/year) and vinyl acetate (80 000 tonne/year) plants at Cabo, Pernambuco state, to run on methanol. Final capacities have not been disclosed and completion date is set for 1994.

This year, however, the completion of Copene's $1bn cracker, doubling its existing capacity, and associated downstream units consisting of lldPE belonging to Poliolefinas and Politeno. An ethylene pipeline from Copene to Salgema was completed early this year at a total cost of $6.71m. Also, Braspol will start up a new PP unit in Rio de Janeiro in 1992. Projects are underway at Norclor, at Alagoas, and Ciek, also at Rio de Janeiro.

Eduardo Vieira, president of chemical producers association Abiquim. comments that the 1990-91 period was not encouraging for Brazilian companies given the troubles in the domestic market and the gloomy position in the rest of the world. The coming year, he says, will require companies to improve their competitiveness through upstream integration via privatisation of the country's crackers and the creation of large private companies as state-owned Petroquisa withdraws from the downstream segment.

Partitioning of Petroquisa

It is expected that Petroquisa's downstream subsidiaries at Sao Paulo, Camaçari and Rio de Janeiro will pass into private hands in 1992. Also included in Brazil's chemical privatisation plans are operations at Triunfo and some fertiliser concerns.

The first large private company will be PP producer Polibrasil, teaming Ipiranga, Polipropileno and Shell. This will operate a total of 360 000 tonne/year capacity with plants based at Camaçari, Rio and Sao Paulo.

In terms of market integration, the linking of Brazil with Argentina through Mercosur is unlikely to play a major role in 1992. Bilateral trade will increase to a limited extent, as companies explore opportunities in both markets. However, the majority of Brazilian exports will still find homes outside Latin America.

Turning to Argentina itself, the main events in 1992 will be the privatisation of the basic petrochemicals producers Petroquimica General Mosconi (PGM), based at Ensenada, and Petroquimica Bahia Blanca (PBB), the cracker based at Bahia Blanca. The government wants to speed up the PGM privatisation (ECN 20 Jan) and hopes to have both companies in private hands by mid-1992. This will allow other players to restructure operations, integrating upstream production, reducing costs and increasing competitiveness on the domestic market against imports.

On the market prospects, Ruben Puentedura, president of industry association CIQP, comments that overall chemicals demand in Argentina should grow by 3-4% in 1992. Specifically, demand will increase in the packaging, automotive and construction industries.

Last year Argentina's GDP increased by 4-5%, while industrial production advanced 7%. Prospects for 1992 are expected to be still brighter, with GDP increasing by 5-6% and industrial production by 7-8%.

The Argentine thermoplastics and chemicals market, as well as the consumer sector, is now recovering from a long-term slump. The polymer market is set to stabilise in the first quarter of the year, following seasonal demand trends. Recovery is expected for Q3 onwards.

However, growth in petrochemicals demand will not be met entirely from domestic production. Local producers are affected by competition from abroad, and as prices are higher in the country this attracts imports in both petrochemicals and finished goods. The goal of the domestic producers, however, is to reinforce their position in the home market, and reduce exports.

The deregulation adopted by the government in the last few months of 1991 has released a new strength for exporters, which benefit from lower taxes and port terminal costs and reduced freight rates. Thus, it is expected that exports will be more competitive than in the past. However, the lack of an effective anti-dumping regulation raises difficulties in tackling low priced imports.

Last year saw the startup of the Ipako/Shell 120 000 tonne/year PP joint venture at Ensenada. Early this year Petroken's 100 000 tonne/year of homopolymer capacity will add to Cuyo's 70 000 tonne/year. Despite the encouraging growth in domestic PP demand, to 55 000 tonne/year in 1991 and an expected 65 000 tonne/year for 1992, this still leaves a sizeable amount of material for export. Markets in South America and further afield will doubtless be sought. Decisions on further capital investment in Argentina look unlikely in the first half of 1992.

Brazil: thermoplastic market 1991-92 prospects ('000 tonne)
	1991			1992
Product	Internal sales	Imports	Total	Total
HdPE	257	5	262	278
LdPE	476	6	482	572
PP	297	4	301	320
PVC	345	60	405	350
PS	137	1	138	150
Total	1512	76	1588	1670
Source: Petroquisa

Argentina: project status 1992
Company/type	Annual capacity   '000 tonne	Product	Investment $m	Completion
Petroken/new	100	PP	180	Jan/92
Unistar/expansion	10	PS	1.2	Q4/92

Both Brazil and Argentina will be making moves on the environmental front this year, especially Brazil which will be putting its best efforts forward as it plays host to the 'Earth Summit' at Rio in June. Abiquim is expected to approve by March a Brazilian version of Responsible Care. This will take a regional approach, aiming to develop strong ties with the communities which host chemical plants throughout Brazil. Union Carbide and Du Pont are enthusiastically supporting the initiative, as well as Ciba-Geigy, Shell and Rhodia, and the three German majors.

In Argentina, the government has created a secretariat to tackle the implementation of Responsible Care. All sectors will be encompassed in its remit, with the petrochemicals industry expected to follow specific guidelines.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly