OUTLOOK '12: Latin American PP supply to tighten

29 December 2011 21:00  [Source: ICIS news]

By George Martin

HOUSTON (ICIS)--Latin American nations will not add polypropylene (PP) capacity in 2012, suggesting that PP supply will tighten in the region, which may require more imports to cover the expected increase in demand.

Every year, demand for petrochemicals is expected to increase at the same rate than GDP for the area, as a minimum.

The status of local economies and presidential elections in some countries are expected to have a large influence on Latin American polypropylene (PP) demand in 2012.

Although the eurozone crisis has affected Latin America, demand for PP will likely respond more to regional and domestic issues.

Capacity expansions have been on hold for lack of propylene.

Market participants in Mexico are optimistic about the prospects for 2012. It is expected that the year will start with reasonable feedstock costs.

The start of 2011 was marked by sharp increases in propylene and PP, which hurt demand. At the start of 2012, propylene inventories will be high, suggesting that prices will not grow too quickly.

In Mexico, 2012 will be an election year. Historically, election years have been good for petrochemical demand in Mexico because government officials step up infrastructure projects to improve their re-election chances.

The only concern in Mexico is uncertainty about currency issues after a highly volatile dollar value in 2011.

Brazil, the largest petrochemical producer in the region, has stumbled at the end of 2011 and it is struggling to prevent a large decline of its currency, but market participants remain optimistic for 2012.

Demand for polyolefins has not declined as much as other segments of the economy, a Brazilian distributor said. With the international events that Brazil will host in coming years (2014 Soccer World Cup, 2016 Summer Olympics) it is certain the country will have a good level of economic activity, the source said.

Argentina’s PP demand will likely have a steady year. There is preoccupation in the country caused by the cancellation of utility subsidies and potential increases to tariffs for a large number of services.

For now the feeling is one of uncertainty. Market participants expect these matters will have gradual clarification during the first months of 2012.

Demand is likely to reappear for countries on the Pacific Coast of the continent, but prices will be largely dependent on China’s resumption of normal production activities and trade.

Conditions will be steady in Colombia, a country that is self-sufficient in PP production, but one that needs to export much of its domestic production to operate the plant at economical rates.

Venezuela is expected to increase its imports programme, as demand in that nation has gone up. The local plant increased capacity by 34,000 tonnes/year to a total of 144,000 tonnes/year, but the plant has not produced as expected after the expansion.

Venezuela’s presidential election in 2012 is also expected to boost economic activity in the country as massive redistribution of earnings takes place, favouring the sectors of lower resources that constitute the electoral base of Hugo Chavez.

Demand from China can lift export prices in the US Gulf, and the whole Latin American region. But if China’s demand remains dormant, a tide of product from the Middle East can be expected to sail west – a measure likely to cap prices.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: George Martin
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