OUTLOOK '13: Brazil eyes slowdown, Mexico sees reform

03 January 2013 20:44  [Source: ICIS news]

HOUSTON (ICIS)--The outlook for Brazil's economy continues to dim as the nation cannot shake off its sluggish growth.

In Mexico, growth is expected to slow slightly in 2013, according to the International Monetary Fund (IMF). However, the country's economy could benefit if the US continues to recover. Moreover, Mexico's new president could introduce a series of reforms, including some that would target the nation's energy sector.

In Brazil, the nation's economists have lowered their expectations for growth in 2013 to 3.4%, according to a market report from the Central Bank of Brazil. Until this month, growth in 2013 was expected to be 4%.

For this year, the Brazilian economy will likely grow by 1.0%.

“Clearly this year, it has not performed to expectations,” said Bob Bauman, president of US-based consultancy Polymer Consulting International. “I don't know if it will recover fully in 2013.”

Not only will Brazilian producers contend with a sluggish economy, they will also deal with competition from US producers.

The advent of shale gas has given US plastics producers a cost advantage against much of the world, which relies on higher cost naphtha as a feedstock.

US companies are now targeting Brazil, and imports now make up a substantial portion of the Brazilian market, Bauman said.

Those imports, in fact, are one of the reasons why the Brazilian government recently increased tariffs on plastics, he said.

In addition, Brazil is also facing competition from finished plastic goods, which are being imported mainly from Asia, said Jorge Buhler-Vidal, director of Polyolefins Consulting.

Such a scenario benefits neither Brazilian resin producers nor plastic processors, he said.

For the Brazilian economy in general, the government has introduced several stimulus measures, including a programme for infrastructure.

As the infrastructure projects move forward, they could increase demand for pipe made of polyethylene (PE) and polyvinyl chloride (PVC), Buhler-Vidal said.

Mexico, Latin America's second largest economy, will likely grow by 3.5% in 2013, down from 3.8% in 2012, the International Monetary Fund (IMF) said in its October outlook.

Despite the outlook for slower growth, an all-time high was recently reached by the nation's benchmark stock index.

Plus, Mexico is attracting manufacturers from Asia, who want to be closer to their markets in the Americas, Buhler-Vidal said.

The country is already benefitting from the advent of shale gas in the US, which is providing Mexican industry with low-cost fuel.

Meanwhile, to facilitate natural gas imports from the US, Mexico plans to increase pipeline capacity by 38%. The country plans to build eight new pipelines, which would add 4,260km (2,647 miles). The project is valued at $7.8bn (€5.9bn) .

Mexico's economy could get a further boost if the government passes a series of reforms.

Mexico's new president, Enrique Pena Nieto, signed a deal with the country's two main opposition parties, committing them to various economic reforms.

The so-called Pact for Mexico also includes the promise of more competition in refining, petrochemicals and energy.

Buhler-Vidal warned that newly elected presidents typically have a small window through which they can push ambitious reforms.

"He has 90 days to do whatever big changes he is going to do," Buhler-Vidal said. "If it doesn't happen, it will not happen."

Regarding energy reform, the deal ruled out the privatisation of Pemex, the state-owned energy and petrochemical producer. Plus, Mexico's hydrocarbons will continue to belong to the state.

Reforming Mexico's energy regulations is crucial if the country intends to develop its vast shale-gas reserves, estimated at 681 trillion cubic feet (tcf) (19 trillion cubic metres).

As it stands, Pemex lacks the resources to undertake such a large project. Instead, the company is concentrating on oil production.

Even though Mexico could rely on US imports of natural gas, such a strategy would leave the nation's natural resources untapped.

The country should be able to benefit from its own resources, Buhler-Vidal said.

For Mexico's petrochemical industry, future projects may follow the model set by Ethylene XXI, which is being developed by Braskem and Grupo Idesa.

Pemex will supply feedstock ethane.

By: Al Greenwood
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