OUTLOOK '12: Latin American growth threatened by European woes

03 January 2012 21:46  [Source: ICIS news]

HOUSTON (ICIS)--Growth in Latin America is likely to outpace the developed world in 2012, although Europe's continuing sovereign debt crisis will put pressure on the region's economy.

Brazil's economy, the largest in Latin America and the second largest in the western hemisphere, stalled in the third quarter, recording no growth, according to government statistics.

Raul Arias, senior consultant and manager for Latin America at Nexant, said: "I think there are concerns in Brazil about the European crisis."

Jorge Buhler-Vidal, director of Polyolefins Consulting, said Brazil is a large exporter, so problems in the rest of the world will slow its economy.

He said the Brazilian real remains relatively strong, which makes import prices more competitive against locally made products.

Bob Bauman, president of Polymer Consulting International, said the mood at the Latin American Petrochemical Association's (APLA) annual conference was subdued for Brazil. "The demand for plastic was not as good as expected," he said.

Brazil's strong performance in 2010 had aldso raised expectations. The country's GDP grew by 7.5% that year, according to the International Monetary Fund (IMF).

But the economy is expected to have grown at about half that rate, by 3.8%,in 2011 and to grow by 3.6% in 2012.

Even so, Arias said Brazil still has several long-term trends in its favour, such as its off-shore oil reserves and its place as host to forthcoming Olympics and World Cup competitions.

Brazil's interest rate is still at 11%, leaving the nation room to further stimulate its economy. It continues to run several programmes to help the poor.

In Mexico, Latin America's second largest economy, prospects will be tied to the neighbouring US, which has recently shown some signs of growth.

Mexico has also increased spending on exploration and production, which should help the country's economy, Bauman said.

After growing by 5.4% in 2010, Mexico's GDP should grow by 3.8% in 2011 and by 3.6% in 2012, the IMF said.

During 2012, Mexico will be holding presidential elections and the campaign has already included talk about opening up state oil producer Pemex to private investors.

Arias said similar proposals have been made in the past, but they have failed because of social and political hurdles.

Still, Pemex has established several partnerships with private companies. It is creating a joint venture with Mexichem to increase vinyl chloride monomer (VCM) capacity. And Brazil-based Unigel and Pemex are in a joint venture that operates an acrylonitrile (ACN) plant in Veracruz.

Brazil-based Braskem and Idesa plan to start up their joint-venture Ethylene XXI project in mid 2015. Pemex will supply the feedstock.

Buhler-Vidal said: "That sort of deal could not take place a few years ago. People are finding a way to work within the system to get the right thing to happen."

Arias said: "These are milestones."

Meanwhile, Mexichem and Grupo Alfa are making acquisitions throughout the Americas, according to Buhler-Vidal. He said: "They are taking advantage of being well run and being able to expand."

In Argentina, petrochemical producers will probably struggle with natural gas cutbacks, which have occurred every winter in recent years.

It could take 10 years for Argentina to develop its shale gas reserves, and that assumes that the country can address environmental concerns about hydraulic fracturing and can obtain the large amounts of water needed for production, Buhler-Vidal said.

"We are many steps away," he said.

Meanwhile, the government has announced steps to remove natural gas subsidies that are given to consumers.

But even if those steps are successful, they will not address the country's natural gas shortages because they do not address the price controls imposed on the fuel, Buhler-Vidal said.

Until Argentina resolves its feedstock shortage, it is unlikely to have any major petrochemical projects, he said.

In Venezuela, state petrochemical producer Pequiven announced plans to triple resin production at three sites by 2016.

However, Bauman warned that the nation will have to overcome feedstock, power and financing constraints.

Arias added that new plant announcements in other parts of the Americas could cause Pequiven to change the scope and timing of its projects.

In other parts of Latin America, Ecopetrol could build a polyolefins complex in Cartagena, Colombia.

In Peru, Petroperu and Braskem are studying the feasibility of an integrated polyethylene (PE) complex.

Bolivia’s state-owned oil and gas company Yacimientos Petroliferos Fiscales Bolivianos (YPFB) plans to build an ethylene and PE complex in the country's Tarija department.

Additional reporting by William Lemos, Anna Jagger and Joseph Chang

For more on ACN, VCM, olefins or polyolefins visit ICIS chemical intelligence
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