07 November 2011 00:00 [Source: ICB]
Feedstock availability varies among Latin American countries
Following the recession in 2008-2009, Latin America's economy grew faster than those in the developed world, fueled by a mix of a growing middle class and high demand for commodities.
That growth has since been tempered by the slowdown in the US and the sovereign debt problems in Europe. But Latin America's growth should keep exceeding that in the developed world, with the region growing by 4.5% this year and about 4% next year, according to the International Monetary Fund (IMF).
By contrast, the US economy should grow by 1.6% in 2011 and 1.9% in 2012. In Europe, growth should be 1.6% and 1.3% for the countries using the euro currency.
Bob Bauman, president of US-based Polymer Consulting International, agrees. "I am still bullish on Latin America for domestic growth," he says. Local consumption is still relatively low, so it still has a large potential to grow if the region's economy remains strong, says Bauman.
Plus, the region's largest economies, Brazil and Mexico, still have some flexibility to fight any slowdown in their economies. While Mexico and Central America are still closely tied to the US economy, other countries have more diverse trading partners, says Raul Arias, senior consultant and manager for Latin America at Nexant.
"For South American countries, it's a more balanced situation now. You have trade with Europe and trade with Asia."
Although the economic outlook for the region is optimistic, the fortunes of individual countries could vary widely. Feedstock availability, new petrochemical projects and forecasts for growth all vary among the largest economies in Latin America.
Latin America's biggest economy, Brazil, should grow by 3.8% this year and 3.6% in 2012, both down from 7.5% in 2010, according to the IMF. Mexico should also grow by 3.8% in 2011 and 3.6% in 2012, down from 5.4% in 2010. Argentina should grow by 8.0% this year and 4.6% next year, down from 9.2% in 2010. Venezuela should grow by 2.8% in 2011 and 3.6% in 2012, compared with its economy shrinking by 1.5% in 2010.
As Wongtschowski notes, demand for petrochemicals should exceed GDP growth. And a good part of that demand will be satisfied by imports, particularly from the US.
The advent of shale gas has allowed the US petrochemical industry to become the world's second most competitive producer, behind the Middle East, says Bauman. Already, the US is exporting material to Latin America, and those shipments could increase as the nation adds more ethylene capacity. Those US exports could force out Asian producers that currently sell in the region, says Bauman.
Many Latin American countries have natural gas reserves that could be used to develop their own feedstock advantage.
Brazil, for example, plans to use its off-gas from its pre-salt oil wells to provide feedstock for its large Complexo Petroquimico do Rio de Janeiro (Comperj). As Brazil continues to develop its pre-salt oil, its petrochemical industry could have more access to competitive feedstocks. Five years from now, Brazil could even announce another round of petrochemical projects, says Bauman. But for the most part, politics and geography will hold up the development of new sources of raw materials in the region, he says.
Argentina has natural gas in the south of the country, far from its petrochemical complexes. Moreover, price controls are discouraging companies from developing the reserves. "They are importing gas from Bolivia," says Bauman. "They should be exporting instead of importing."
In Venezuela, nationalization has scared away many potential investors.
In Peru, there are questions about the size of the natural gas reserves, says Bauman. Even if those questions were resolved, producers would be responsible for paying for the infrastructure needed to develop those reserves.
Many new projects are lined up for Latin America Copyright: RexFeatures
Even with greater access to feedstock, the lack of adequate infrastructure would still hold back the region's petrochemical industry, according to Wongtschowski.
Many new projects are lined up for Latin America
Earlier this year at Brasilplast, Braskem said that insufficient ports, roads, airports and rail were creating obstacles to the efficient operation of Brazil's polyvinyl chloride (PVC) sector. Infrastructure was also identified as an obstacle by Mexico's chemical trade group, the Asociacion Nacional de la Industria Quimica (ANIQ).
Despite such challenges, countries are moving forward with new projects. Brazil is embarking on the region's most ambitious project, Petrobras's Comperj. Following an overhaul announced earlier this year, the complex will now have two refineries instead of one so it could help meet the nation's growing demand for fuel.
A 480,000 tonne/year paraxylene (PX) plant at Comperj will provide feedstock to the Petroquimica Suape project in northeast Brazil.
Meanwhile, Comperj will have a natural-gas treatment-plant, providing feedstock ethane for its petrochemical units. Further north, Braskem plans to start up its PVC and vinyl chloride monomer (VCM) plants in Alagoas in 2012. The PVC plant will have a capacity of 200,000 tonnes/year. BASF plans to build a world-scale acrylates complex in Camacari, Bahia. Products will include acrylic acid, butyl acrylate (butac) and superabsorbent polymers.
These new projects should meet a ready market in Brazil. In a publication from 2009, the group Fundacao Getulio Vargas said that close to 32 million Brazilians rose to the working and middle classes between 2003 and 2008. This has created a big surge in chemical demand.
"When the middle class and the lower middle class get money, things like packaging, toys, house wares all increase - the big drivers for chemical demand," says Bauman.
Likewise, two other big end markets for chemicals - construction and automobiles - are also expanding in Brazil.
The nation is hosting football's World Cup in 2014 and the Olympics two years later. Meanwhile, the country has continued its housing assistance programme, Minha Casa Minha Vida.
Regarding automobiles, the number of all commercial and light vehicles that were licensed between January and September this year reached 4.26 million units, up 8.40% from 3.93 million from the same period in 2010, according to Fenabrave, the nation's automobile distributors trade group. In 2010, vehicle licensing hit a record, reaching 5.44 million versus 4.84 million in 2009.
The growth in automobile sales does have a downside. It is straining Brazil's fuel supplies. This year, the country actually imported fuel ethanol from the US.
To help meet rising demand, Petrobras started up its Colina ethanol refinery in the state of Sao Paulo. In all, Petrobras plans to invest $4.1bn in biofuels in 2011-2015.
Mexico is also building a large petrochemical project, although not at the same scale as Comperj. The Ethylene XXI project is being built in Coatzacoalcos, Veracruz, by a joint venture made up of Braskem and Grupo Idesa. The $2.5 billion project, with an early 2015 start-up, will have a 1 million tonnes/year ethane cracker and three polyethylene (PE) plants with a combined capacity of about 1 million tonnes/year of resin.
Ethylene XXI will help Mexico reduce its polyethylene imports, although the country will still have a deficit.
In addition, Mexichem and Pemex have proposed creating a joint venture that would expand VCM capacity by 400,000 tonnes/year. This is basically a revival of an earlier project. In 2002, the head of Pemex Petroquimica announced a similar-sized expansion at its VCM plant in Pajaritos, which was never started.
Bauman says the expansion plan was pulled because Pemex needed to spend the money on exploration and production - a move intended to reverse the nation's declining oil production.
Even with the revived VCM expansion project, Bauman says Mexico will still continue to import the monomer.
In fact, Mexico is becoming a larger and larger importer of petrochemicals, according to ANIQ, the nation's chemical trade group. In 2010, Mexico's chemical industry reported a trade deficit of $17 billion, a 43% increase over 2009, according to ANIQ.
ANIQ has proposed several steps, such as eliminating duties, pursuing anti-dumping measures, creating uniform environmental regulations and modernising the country's transport infrastructure to promote growth in the industry.
Also, Mexico should approve a fiscal reform that eliminates the tributary charge to which Pemex is subject. This would free up resources for reinvestment.
The rising chemical-trade deficit reflects the growth in the country's economy. Following the recession, Mexico staged a V-shaped recovery in output and domestic demand, according to the IMF. Overall, output has returned to levels before the recession, although employment and underemployment still remain higher.
Although the country's automobile sales have not recovered to pre-crisis levels, it has still grown substantially since the recession, according to AMDA, the trade group that represents the nation's automobile distributors. Between January and September this year, licensed light-weight vehicles reached 631,000, up by 11% year on year.
Unlike Mexico or Brazil, Argentina has no large projects planned. As well as a lack of feedstocks, the country has annual natural-gas cutbacks each winter, causing existing petrochemical plants to reduce production rates.
With incumbent Cristina Kirchner predicted to win this year's presidential election, Argentina will be unlikely to make any substantial changes to its policies, says Bauman.
Nonetheless, the country has announced new projects. Mas Energia inaugurated a new refinery in Plaza Huincul, Neuquen. The company plans to build another refinery, called RENESA II, at the same location.
Meanwhile, Petroquimica Rio Tercero opened an expanded hydrochloric acid plant in Rio Tercero, Cordoba.
Otherwise, most of the new projects announced this year have been for biodiesel and bioethanol.
While Argentina's petrochemical industry is not adding any significant capacity, its economy should continue expanding. The country is one of the world's largest producers of grains, and Argentina has prospered because of high crop prices.
Mineral production is also growing, and demand from Brazil has bolstered the nation's industrial production. However, any resulting increased demand for petrochemicals will likely be met by imports.
Venezuela is continuing to import polymers despite its huge hydrocarbon reserves.
Early this year, Venezuela's plastics trade group, Avipla, said the country had a 10% deficit in resin, equal to about 3,000 tonnes.
The imports will likely continue, because new projects will remain mired in delays. The Polimerica polyethylene project remains on hold because it is unclear how the project will secure feedstock. Polimerica is a joint venture made up of Braskem and Pequiven. Were progress to resume, start-up could begin in 2015.
There are unlikely to be any big project announcements in Latin America in the near future, says Nexant's Arias.
"For a big project, you have to solve internal political issues, you have to solve financial issues, and you have to solve supply-and-demand-balancing issues," he says.
Moreover, if the world economy takes a turn for the worse, that could further discourage producers from adding more capacity. Although Latin America should outperform the developed world, the IMF still expects the region to grow at a slower pace in 2012.
In fact, Arias says there was a noticeable change between the first and second halves of 2011. "You already have to break up the year into two," he says. "If you talk to some people, you already hear a much more cautious view for this year."
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