OUTLOOK ‘08: Feedstock concerns LatAm PP

31 December 2007 19:00  [Source: ICIS news]

By George Martin

HOUSTON (ICIS news)--Concerns over the supply of feedstock will remain a potent obstacle to growth in Latin America’s polypropylene (PP) markets in 2008 and beyond, industry sources said.

Supply is expected to remain tight in Latin America at least for the first half of the year, as few projects are scheduled to start up and those in planning stages will need to secure feedstock to materialise.

In Argentina, the lack of new sources of propylene to feed expansions will prevent expansions and any gains in demand will be covered with imports from Brazil, sources said.

Another factor holding back new projects is an energy shortage which is expected to return in 2008 because there are no investments to produce a lasting solution in this field.

Brazilian markets are poised to gain from this situation and will incorporate new production in 2008 from Petroquimica Paulinia’s 300,000-350,000 tonne/year plant in Sao Paulo state.

Brazilian producers have succeeded in establishing high PP prices in their domestic market, but they also claim that their costs are higher due to Brazil’s occasional need to import naphtha.

At the same time PP imports from all over the world have acted as a moderator of prices in the country. US PP exports are landing in Brazil with increasing volumes despite freight costs and a 15% import tariff.

Brazilian producers keep an eye on import statistics to assess the severity of the problem and take action accordingly, an industry source said.

Likewise, Chile faces feedstock concerns, chiefly the unreliable supply of natural gas from Argentina.

Production of PP in Chile has never been sufficient to satisfy local demand and this pattern will likely continue in 2008 due to Argentina’s persistent energy shortages, sources said.

Petroquim, the Chilean producer with a 120,000 tonne/year plant in Concepcion, has not been able to produce at full rates in 2007 due to shortages of propylene.

Petroquim has plans to build a 150,000 tonnes/year PP facility in Talcahuano in late 2010, but securing raw materials remains the key to this project’s feasibility.

Chilean PP imports from the US Gulf have increased in 2007, according to official US trade data, displacing products from Asia, and this pattern is expected to continue in early 2008, according to market sources.

Colombia’s short-term PP outlook is steady, considering that local producer Propilco supplies all domestic needs and is an important regional exporter. Propilco’s plant has a nameplate capacity of 380,000 tonnes/year.

Propilco has begun production at a new propane/propylene splitter that is intended to reduce the Colombian PP producer's dependence on imported raw materials. The company expects to supply 30% of their needs with the new unit.

By 2009, the company expects to increase PP capacity to 500,000 tonnes/year according to Propilco officials.

Venezuelan consumption of PP has increased, forcing local producers to reduce or eliminate exports to keep up with domestic demand into 2008. There are plans by Venezuelan state producer Pequiven and Brazil’s Braskem to open a 450,000 tonne/year plant in 2012.

Until then, Venezuela will have to complement local production of PP with imports to supply its internal needs.

In North America, Mexico is expected to increase production in the second quarter of 2008 with the 350,000 tonne/year expansion at Indelpro’s PP production plant in Altamira, Tamaulipas, according to company officials.

Mexico produces only about a third of its PP needs, but the new Altamira production will be intended to expand exports as well as capture domestic market share.

This production may displace some volumes from the US currently going into Mexico, and will likely put pressure on domestic and regional prices.

The North American Free Trade Agreement (NAFTA) has made Mexico the main destination for US PP exports.

By: George Martin
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