Price and market trends: Latin America polyolefins imports to rise in 2013

25 January 2013 10:49  [Source: ICB]

Capacity expansions get delayed amid poor economics and feedstock shortages

The natural demand growth for polyethylene (PE) and polypropylene (PP) in Latin America derived from economic development and demographic changes is not finding a corresponding increase in production. This will bring more opportunity for sellers of imported product in the region during 2013.


Mexico and other Latin American countries need plastic imports

Copyright: RexFeatures

The only project that is moving ahead in Latin America is Braskem Idesa's Ethylene XXI project in Coatzacoalcos, Mexico, and this will not come on line until July 2015, if the project remains on schedule.

Ethylene XXI will include a 1.05m tonne/year ethane cracker, two high density polyethylene (HDPE) plants with capacities of 350,000 tonnes/year and 400,000 tonnes/year, and one 300,000 tonne/year low density polyethylene (LDPE) plant.

On the bio-based polymers front, US-based Dow Chemical and Japan's Mitsui in January announced they will postpone the second phase of their joint venture to construct a $1.5bn (€1.1bn) sugarcane-based ethylene and PE production facility in southeast Brazil.

The 50:50 joint venture was formed in 2011 and operations at the Santa Vitoria plant were due to begin in the second quarter of 2013. Dow said the delay was mainly due to increasing operational costs and uncertainties connected to land ownership in Brazil. "The Santa Vitoria project is of high strategic importance for Dow and Mitsui," said a spokeswoman for Dow. "The two companies are working together to resolve the current difficulties and will continue with the second phase of the project as soon as possible."

The first phase of the project, which includes the expansion of sugarcane plantations and the construction of an ethanol facility, remains on schedule, Dow said.

On the PP side, capacity expansions in Latin America have been on hold because of lack of feedstock propylene.

Another big factor for PP markets will be feedstock costs. Prices skyrocketed in early 2012 as a result of cracker turnarounds that limited propylene production.

The 2012 schedule of cracker maintenance was a heavy one, aggravated by many unexpected outages. 2013 is expected to bring a lighter schedule of shutdowns.

The global economic malaise is slowing down the prospects of nations such as Brazil, a member of the so called "BRIC" (Brazil, Russia, India and China) countries noted by their rapid ascendance in economic development.

The development of other Latin American countries has also hit some snags. The region as a whole will grow more slowly than initially expected. The region, including Mexico and the Caribbean, is expected to see GDP growth of about 3.9% in 2013, according to IMF forecasts. Similar growth figures are usually expected for commodities, at a minimum.

Market participants in Mexico remain optimistic about the prospects for 2013. Mexico has made some strides in competitiveness, attracting industrial production to serve domestic needs and also to export products to the US from its strategic location.

Plastic processors have had a decent year in 2012 and expect demand to grow further in 2013.

Much of the overall optimism stems from growth of the automotive industry in Mexico, expected to materialize in coming months and years with the relocation of plants.

Uncertainty about currency issues dissipated with a solid recovery of the Mexican peso at the end of 2012.

Brazil, the largest petrochemical producer in the region, had stumbled in the first half of 2012 and it is struggling to keep its currency steady, but market participants remain optimistic for 2013.

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 football World Cup, 2016 Summer Olympics - it is certain the country will have a good level of economic activity, the source said.

In the short term, PE prices could be headed higher in Brazil. Braskem, the country's sole PE producer, was seeking to increase January prices for all grades of PE by R150/tonne ($74/tonne, €56/tonne), effective on 15 January, a company source said on 9 January.

The increase emulates initiatives in the US Gulf PE market, where producers are seeking a 5 cent/lb increase for January. Braskem is striving to align domestic pricing policy more closely with international price trends. As of 9 January, LDPE prices in Brazil were at $2,548-2,646/tonne FOT (free on truck), while LLDPE butene levels were at $2,425-2,523/tonne FOT. HDPE blow moulding grades were at $2,450-2,597/tonne FOT.

Braskem also sought to increase domestic prices for all grades of PP in January by R150/tonne ($74/tonne, €56/tonne), a company source said on 7 January.

There were expectations in Brazil that demand would pick up in January because transformer's inventories are usually low at the end of the year.

Prior to the January increase, PP prices in Brazil were at $2,548-2,645/tonne for raffia and $2425-2,523/tonne including local taxes (PIS/COFINS).

The greatest preoccupation in Argentina stems from the government's protectionism, which has made imports less available in Argentina.

The expropriation of Spain-based oil and gas company Repsol's controlling share in YPF has created an international storm that threatens to further isolate Argentina from capital markets, at a time when the government is seeking investments in the oil, gas and mining sectors.

Argentina has implemented price controls, but in general, the prices chemical producers are allowed to pass along are higher than found in the international market.

Argentina PP demand will likely be steady in 2013. However, there is concern in the country about the difficulty in obtaining import ­licenses, and the restrictions the government places for liberation of dollars to the public.

The future is more uncertain in Argentina, because of the unpredictability of government regulations, but local PP demand has held during 2012.

Conditions will be steady in Colombia, a country that remains dependent on PE imports from Brazil, Asia and the US Gulf.

With monthly price adjustments based on US Gulf benchmarks and currency fluctuations, prices in Colombia will follow international guidelines.

For PP, conditions will also be steady. The country is self-sufficient in PP production, but needs to export much of its domestic production to operate at economical rates.

Expect to see Venezuela increasing its imports program, as demand in that nation has gone up without a corresponding increase in production of PE.

Production will likely remain spotty and insufficient to cover domestic needs. Joint ventures with Braskem remain on the bookshelf, waiting for favourable conditions.

The local PP plant increased capacity by 34,000 tonnes/year to a total of 144,000 tonnes/year in 2010, but it has not produced at the expected rates after the expansion.

Venezuela's presidential election in 2012 has failed to change perceptions for petrochemicals in the country. However, the delicate health of President Hugo Chavez could precipitate political and economic changes in the short term.

Net importers on the Pacific coast such as Chile, Peru and Ecuador are expected grow in sync with their demographic changes but import prices will challenge price levels from regional producers.

If demand from China does not improve in 2013, Latin American markets may see a surge of imports from the Middle East sailing west. The challenge for regional producers will be to maintain profitability in a more competitive environment.

By: George Martin
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