FocusPE smuggling plagues Colombia, Venezuela

19 July 2007 01:13  [Source: ICIS news]

By George Martin

HOUSTON (ICIS news)--A significant volume of contraband polyethylene (PE) from Venezuela is entering Colombia, creating sizable revenue losses for both countries, producers in both nations said on Wednesday.

A large difference in PE price between the two countries makes smuggling into Colombia profitable.

While LDPE sells in Venezuela at about $1,600-1,650/tonne, according to global chemical market intelligence service ICIS pricing, the same product sells in Colombia at $1,800/tonne and higher, depending on terms and volumes.

What started as a small operation has grown to volumes estimated at 2,000 tonnes/month, equivalent to one-half of the total production in Colombia, according to a source with Ecopetrol.

This problem has also caught the attention of a Venezuelan producer, who is mulling ways to eradicate this problem.

Like Colombia, Venezuela does not produce enough PE for its own consumption, particularly LDPE, and must sporadically import material to compensate for the shortages.

The smuggling into Colombia aggravates the shortage in Venezuela, leading to more imports to supply the domestic market.

Colombia’s Ecopetrol routinely imports PE from the US Gulf and Mexico. In addition, some legal volumes from Venezuela enter Colombia, together with imports of varied origins done by private importers.

The smuggled volumes undercut prices for everyone in Colombia, and this adds uncertainty to the PE market, which is already affected by a substantial revaluation of the Colombian currency versus the US dollar.

While one US dollar was equivalent to about Colombian pesos (Ps) 2,200 in January, on 18 July the dollar was at Ps1,925 - roughly a 12.5% drop.

The smuggling appears to be confined to PE. A source with Venezuelan polypropylene (PP) producer Propilven said the company routinely audits the facilities of buyers who suddenly increase purchase volumes, and so far, finds the extra demand justified by the incorporation of new equipment.

Polypropylene (PP) could be an attractive resin for smugglers because, like PE, there is a large price gap between the products of each country. While PP raffia sells at about $1,430/tonne in Venezuela, the same grade sells at $1,850/tonne and higher in Colombia, according to ICIS data.

There were no indications of illegal activities involving polystyrene (PS) resins. This was attributed to PS price parity in the two countries.

 

By: George Martin
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