INSIGHT: Latin America’s stalling capacity growth

26 June 2013 16:28  [Source: ICIS news]

By Tom Brown

LONDON (ICIS)--Aside from the Asia-Pacific region in general and China in particular, Latin America is arguably seen as the most attractive of the emerging economic regions.

Maturing economies and fast-growing middle classes have caught the eye of chemical industry players from AkzoNobel to Monsanto to LANXESS, whether as a lucrative export market or as a destination for new facilities.

Expectations of strong domestic and export-led demand growth has led to an ambitious slate of production plants set to appear across the region over the next few years, but economic slowdowns, bureaucracy and the North American shale gas boom have arrested the progress of numerous projects.

The slowdown may be such that no new petrochemicals capacity is likely to come onstream in Latin America – with the exception of Braskem and Idesa’s Ethylene XXI project in Mexico – before 2021, according to IntelliChem CEO Rina Quijada.

Even the production of ethylene, the building block for so many petrochemical products, is unlikely to increase in South America before 2017, according to Jorge de Zavaleta, Dow Chemical's Latin America director of feedstocks and energy. This leaves the region lagging behind even Europe’s tepid forecast compound annual capacity growth rate of 0.02% over the period.

Polyethylene and (PE) and polypropylene (PP) facility expansion is also sluggish. According to Jorge Buhler-Vidal, director of Polyolefins Consulting, there are six PE and PP projects in Brazil, all of which are either under study or on hold, with progress stalled across the board.

One project, a joint venture between Dow Chemical and Mitsui to create green PE, has been put on hold with no date set for it to move forward, if it ever does.

“Pretty much all [Brazilian projects] are on hold or under study,” he said, speaking at the Latin American and Caribbean petrochemicals conference in Paris. “The Dow Mitsui project is on hold... and then we have the other ones, [all] Braskem projects in one sense or another. Probably the one that is coming next is the Comperj PE project, but that is very iffy.

“I think it will take place, but it will be a while before it does,” he added.

The level of red tape necessary to scythe through in many countries to get to the point of breaking ground also remains an issue, leaving many projects in limbo while endless rounds of planning and review are undertaken.

“I think they have difficulty with making the projects move along,” said Buhler of the backlog of Bolivian projects currently at various stages of study in Bolivia.

There are currently four PE and PP plants slated for development in the country, under the supervision of state petroleum company YPFB or subsidiary EBIH, to be based in Yacuiba, near the Tariaja. However, the LDPE, HDPE and LLDPE plants remain under study despite slated start-up dates in 2017, and a 300,000 tonne/year PP plant remains in the pre-feasibility stage.

“At some point they need to just do it, not plan so much. You can do studies, you can do plans, but at some point you just have to say “okay, let’s go ahead and build”,” added Buhler-Vidal.

The rise of shale gas in North America has also disrupted capacity growth in the region. What had been expected to be a lucrative export market for Latin America has now been flooded with an ocean of cheap ethane, leading to a rush of new installed capacity expected in the US and Canada over the next few years.

Aside from the reduction in northbound export expectations, shale has impacted on some Latin American projects in less obvious ways.

A long-delayed set of PP, LDPE and HDPE projects being developed in Jose, Venezuela by Braskem and Pequiven, look set to remain in mothballs owing to feedstock costs, and the fact that the cost of contractors and suppliers has remained high as a result of shale, according to Buhler-Vidal.

“[The developers] expected a sales upswing in 2014, and to have better access to financing. As shale gas in the US was not in the picture at all [at the time], they expected contractors and machinery suppliers would not have too much work, so everything would be more feasible. None of those conditions came through,” he said.

“The reason for the project was to export to the US. With the US having so much shale gas, and lots of capacity coming up, it now becomes pretty much a domestic project, and there is not much reason for that,” he added.

While companies in Latin America may now be sizing up the demand potential of local markets in the absence of demand from the north, the steep projected increase in US and Canadian ethylene capacity indicates that there may be a surge in exported PE from late-2015 on.

Described by Buhler-Vidal as “polyethylene export wave”, the rise in North American exports will be prompted by new capacity, debottlenecking and restarts of idled facilities, and will make the case for installing new Latin American PE capacity based primarily off domestic demand even tougher.

However, shale has been good news for Ethylene XXI, which is likely to come onstream ahead of a significant proportion of predicted North American capacity, leaving it ahead of the pack when making inroads south with cheap PE.

It is also good news for Braskem, which is involved in almost every project in Latin America currently failing to move forward.

“The ones that arrive sooner are going to be in the best position, and in that sense the project in Mexico has been very timely. They will be the first of all these big projects, so [Braskem and Idesa] will have time to consolidate ,” said Buhler-Vidal.

By: Tom Brown
+44 208 652 3214

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