OUTLOOK '12: PS demand expected to be steady in Latin America

29 December 2011 22:00  [Source: ICIS news]

By George Martin

HOUSTON (ICIS)--Latin American polystyrene (PS) markets are expected to have a steady performance in 2012, with stable production capacity and lower feedstock costs.

The problem for PS producers has been excessive capacity for domestic demand and strong international competition on PS exports.

High costs have also deterred demand because of high crude values during 2011 that have increased feedstocks benzene and styrene monomer costs.

The same occurred in 2011 with the high cost of butadiene rubber, a key feedstock for production of high impact PS (HIPS).

With a large decline in butadiene rubber prices during the second half of 2011, HIPS prices are expected to start the year at reasonable levels, but butadiene rubber prices have not declined in some Latin American countries such as Argentina.

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

Consolidation in the industry has sanitised the PS market to a certain extent, but overcapacity is still present in some countries.

Mexico will have elections in 2012. 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 experiencing 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 petrochemicals 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.

However, PS markets have been frequently oversupplied in Brazil, and this has been more evident at the end of 2011.

Argentina’s PS 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.

The market has grown little in Argentina during 2011 and more of the same is expected for 2012. Argentina exports PS to Chile, Paraguay and Bolivia among others, but the volumes are small.

Demand is likely to stabilise in countries on the Pacific Coast of the continent, which have no local production.

Conditions will be steady in Colombia, a country that is self-sufficient in PS production, but without excessive volumes for exports.

Venezuela has good supply of PS provided by local producer Estizulia. However, high feedstock costs have forced the local producer to increase prices to levels that are nearly twice what other countries pay.

Without changes in feedstock supply, this situation will continue to play in Venezuela during 2012. At the current production and price levels, Venezuela has no chance for exports.

Late arrivals of styrene shipments have been known to paralyse PS production in Venezuela. Shortages of butadiene rubber caused the stoppage of the HIPS line. These logistic obstacles may reappear in 2012.

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

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

By: George Martin
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