INSIGHT: Latin America on a roll

30 November 2007 16:31  [Source: ICIS news]

By Anna Jagger

LONDON (ICIS news)--Brazilian resins producers have had a good year, aided by a gas crisis in Argentina which hit a key competitor. But elevated feedstock costs and new start-ups in the Middle East are threatening future profitability.

“Everybody is discussing the crude oil price and the naphtha price, and the future of the petrochemical industry next year,” Manoel Carnauba, Braskem’s vice president for basic petrochemicals said last week.

“It’s a global concern. Everybody is losing competitiveness.”

He was talking to ICIS during the Latin American Chemical and Petrochemicals Association (APLA) meeting in Buenos Aires.

“What will happen next year if crude prices exceed $100/bbl and if naphtha costs stay above $800/tonne?” Carnauba asked. “Brazil’s main crackers are naphtha based.”

An additional concern is the appreciation of the Brazilian real against the US dollar, which is impacting the profitability of Brazil’s resins producers.

But the mood was generally festive at the APLA meeting.

Brazilian resins demand has exceeded expectations this year, supported by lower interest rates and economic stability.

And Brazil’s announcement this month of a light oil and gas discovery in the Tupi field off the Santos basin will launch the country into the list of the Top 10 oil producers in the world and improve the availability of petrochemicals feedstocks in the long-term.

 “This changes the equation in a dramatic fashion,” said Jorge Buhler of Polyolefins Consulting (PC).

Across Latin America, the economies are generally improving and many countries, including Brazil, Venezuela and Peru, are successfully promoting investments.

There is strong demand for agricultural and mineral commodities and additional income from oil and gas exports, Buhler told delegates at PC’s pre-APLA conference.

“It’s a very exciting time in Latin America.”

This year, Brazil’s resins producers took advantage of a major setback at Dow Chemical’s Bahia Blanca ethylene and polyethylene (PE) complex in Bahia Blanca, Argentina, where gas shortages caused by an unusually cold winter forced the US group to cut operating rates.

PC estimates that Dow’s production at the site fell by 50% between June and August.

The Bahia Blanca cutbacks enabled Brazilian resins producers, including Braskem and its new acquisition, Ipiranga Petroquimica (IPQ), to increase their share of the Brazilian market this year.

Brazilian resins demand is expected to remain strong in 2008, buoyed by a strengthening of the civil construction sector.

The economic fundamentals are stable, observed Geraldo Markus, export and planning manager at IPQ, and Brazilian resins demand is expected to grow by between 4% and 8% next year, depending on the product.

“But we will see what happens in 2009,” Markus said, pointing to new capacity coming onstream in the Middle East and predictions of a 2009 global petrochemicals downturn. He was speaking in an interview for ICIS radio.

It is just a matter of time before the industry enters an oversupply situation, Gary Adams, president of CMAI, told delegates at the APLA meeting. “However, the balance of positives and negatives in the global economy is still positive,” he added.

Consumer demand is expected to remain strong, especially in the BRIC (Brazil, Russia, India and China) countries. And despite the wave of new capacity, “we see the pace of overbuilding on the decline on a historical basis,” Adams said.

CMAI is predicting a global petrochemicals recovery in 2012, following a downturn in 2009 as capacity overcomes growth.

Latin American resins demand is expected to grow at an average annual rate of between 4% and 7% per year between 2001 and 2011. Polypropylene (PP) is leading with projected growth of 7%, followed by polyvinyl chloride (PVC) with 5% and PE with 4%.

Brazil accounts for 54% of Latin America’s production capacity for PE, PP and PVC, Mexico accounts for 17% and Argentina 12%, according to Braskem.

For more on the new wave of capacity coming onstream in the Middle East, see the next issue of ICIS Chemical Business.

Please see ICIS radio for all the APLA interviews.

By: Anna Jagger
+44 20 8652 3214

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