INSIGHT: Venezuela plastic resins shortage reaches critical levels

02 May 2011 21:54  [Source: ICIS news]

By George Martin

HOUSTON (ICIS)--Production shortages in Venezuela have resulted in a 10% deficit in the supply of plastic resins for the domestic market, equivalent to about 3,000 tonnes, according to the Venezuela’s Association for the Plastics Industry (AVIPLA).

Plastic processors that manufacture containers and packaging material for a number of markets, such as the food industry, are working without emergency inventories. All product produced is sold as soon as it is manufactured.

Transformers have been operating under these conditions for a year, according to AVIPLA’s president, Hugo Dell’ Oglio.

This situation has resulted in shortages for several markets, which have been forced to stop plant operations because of the lack of raw material.

Dell’Oglio clarified that the companies that produce packaging materials for the food industry, however, are not experiencing these problems yet because of the priority granted to this key market segment by the Venezuelan government for reasons of national security.

uring the past decade, demand for plastic resins in Venezuela has grown ahead of the available production capacity.

Plastic processors have had to import $2.1bn (€1.4bn) worth of plastic resins over the last 10 years, with more than half of those imports happening in the last three years, Dell’ Oglio said.

There have been recent efforts to upgrade the nation's production capacity of plastic resins, however.

At the end of 2010, Venezuela's polypropylene (PP) producer, Propilven, increased capacity from 110,000 tonnes/year to 144,000 tonnes/year, but production has not increased as expected because of unresolved technical glitches.

The stabilisation process that occurs after a turnaround ran into problems, and production is running at about 70% capacity, a source with Propilven said.

The current resin shortage could improve in May, however, when about 12,000 tonnes of plastic resins from Colombia and other origins are scheduled to arrive. State-owned resin producers are importing the material to sell to transformers.

It is expected that the combination of imports and an increase in domestic production will solve the shortages in the short term, but the massive imports are only a patch and not a complete solution, Dell’ Oglio said.

Venezuela has signed agreements with Brazilian petrochemical company Braskem for the construction of new olefins and polyolefins plants, but the projects have been repeatedly suspended or delayed because of unfavourable conditions in international markets.

A source with Propilven said that a 350,000 tonne/year PP plant is moving ahead for an estimated 2015 completion date. Healthy demand would balance out the influx of new supply after only a couple of years.

However, even if the joint venture (JV) projects with Braskem move forward this year, Venezuela will not be self-sufficient in plastic resins for years to come.

Local polystyrene (PS) production is frequently insufficient, for example. Pequiven - Venezuela's state-run petrochemical company - imports feedstock styrene for Estizulia, the local PS producer, but in recent months, late-arriving shipments have forced Estizulia's plant to shut down for lack of raw material.

This has subsequently forced buyers to import raw material from Mexico, Asia, Brazil or the US Gulf.

However, securing a permit and the dollars needed for the transaction can be a daunting experience, buyers say.

In addition, the government controls prices in an effort to contain inflation, which is running at 29.6% per year, according to March 2011 figures from Venezuela’s Central Bank.

Imports are therefore substantially more expensive than domestic resin - except for domestic PS, which is about twice the price of international PS resins.

The difference in prices could lead to imported product being sold to neighbouring Colombia instead, since prices there are much higher.

As a result, local producers have negotiated with domestic buyers so that imported resins will be sold at international price levels.

An additional complication to Venezuela's supply problems is that investors and suppliers abroad see substantial risks in doing business with Venezuela, where the government frequently expropriates property, citing national security concerns.

Changes in Venezuelan legislation also bring about uncertainty because many new laws enacted have “gray areas” that can be interpreted in different ways. Regulatory risks are a main concern for private investors.

High crude oil prices have been a bonanza for the Venezuelan government, but the country is still highly dependent on imports of all kinds.

With domestic demand for plastic resins already outstripping local production, and imports delayed by a cumbersome imports system, shortages of plastic resins are likely to continue.

($1 = €0.68)

By: George Martin
+1 713 525 2653

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