OUTLOOK ’08: Polyethylene grows in Latin America

28 December 2007 18:30  [Source: ICIS news]

By George Martin

HOUSTON (ICIS news)--Latin American polyethylene (PE) markets will grow in 2008 in step with booming economies in most emerging markets.

One of the key drivers will be the massive consolidation of the industry in Brazil, which is projecting itself as a regional leader in petrochemicals.

There is new production in Mexico expected to stabilise in 2008 and growing demand in Colombia, Venezuela and Chile as well.

Growing pains were experienced in countries like Argentina, which is stretching its natural resources to support the current growth. With the victory of Cristina Kirchner in the recent elections, industry members in Argentina do not expect much change in energy policies, at least in the short term.

This has prompted the local PE producer, Dow Chemical, to seek associations with oil and gas producers to guarantee that upcoming winters will not bring back the energy shortages of 2007, but no results have surfaced about the progress of these talks.

Argentina will need to continue importing low-density polyethylene (LDPE) from Brazil because that grade is not produced locally in sufficient quantities. Other PE grades are also being imported from Brazil.

As long as raw materials keep climbing, PE prices will follow suit. However, production margins may suffer in Argentina due to the price controls, industry sources said. There are no new PE plants in the horizon for Argentina. Any gains in supply may have to come from imports.

Brazil is also an active importer with the prices in Brazil attracting more attention as a viable PE buyer market.

Despite high feedstock costs, it will become increasingly more difficult for Brazilian producers to keep raising prices in 2008.

Brazilian producers have additional pressures from new plants expected to come on line in 2008, like the 200,000 tonnes/year linear low density PE (LLDPE)/high density PE (HDPE) plant that Polietilenos Uniao is building in Santo Andre, Sao Paulo, expected to start production in the third quarter.

Production of PE in Chile has never been sufficient to satisfy local demand and this pattern will continue in 2008. The main road block for additional production is the availability of raw materials in a country that is not self-sufficient in either crude oil or natural gas production.

Although the national oil company ENAP has plans to build a 400,000 tonnes/year PE facility in Chile in late 2010, securing raw materials remains the key to this project’s feasibility.

Colombia has only production of LDPE by Ecopetrol, the state-owned company. Although nominal production capacity is 60,000 tonnes/year, Ecopetrol has been plagued by shortages of ethylene and equipment breakdowns in some of their units.

Typically, Ecopetrol’s production in 2007 has been below 4,000 tonnes/month. Shortages were addressed with imports from Venezuela, Mexico, Asia and the US Gulf. However, PE supply from Venezuela is dwindling because domestic consumption in that country has markedly increased.

Colombia imported substantial amounts of material from Mexico in 2007, because it has a free-trade agreement with that country. But in the last couple of months, Mexico’s supply has dried up due to maintenance in its production plants, leaving the US Gulf as the most likely source of PE for Colombia, coupled to some volumes from Asia.

Consumption of PE has increased in Venezuela, forcing the local producer to import PE from other countries to keep up with domestic demand.

Venezuela has also had some problems related to product smuggled to Colombia. This practice has subsided of late, but it was clear that Venezuelan PE production cannot keep up with internal demand.

Mexico is expected to increase production of PE in 2008, if the technical problems with their intermittently running swing plant are permanently eradicated.

If the Morelos plant starts running consistently, it may replace part of the volumes that enter from the US. Other PE plants in Mexico have also had numerous shutdowns in 2007 for planned and unplanned maintenance.

The petrochemical industry is notoriously under-funded in Mexico. A new tax for industry, recently approved by the Mexican Congress, could improve the situation for petrochemicals in 2008, but it will likely be used to boost sagging crude oil production, according to domestic observers.

Another possibility for PE in Mexico is the potential rebirth of the Phoenix project, if agreement for a new raw materials pricing scheme can be achieved. The original Phoenix project included production of ethylene, propylene, toluene and xylene in addition to PE.

Other Latin American countries who are net buyers are expected to increase consumption of PE at an estimated rate of 4-5%, in line with economic growth projections for the region as a whole.

By: George Martin
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