By George Martin
HOUSTON (ICIS)--Argentina’s pricing of plastic resins for February has become an evolving situation with many potential outcomes, local sellers and buyers said on Wednesday.
At the root of the pricing uncertainty is the devaluation of the currency, pegged at 18% in the last two weeks, when the US dollar went from Ps6.77 to Ps8.01.
Measured from 31 December, the devaluation percentage is 23%, local sources said.
Producers of plastic resins are trying to offset that devaluation and would also like to apply additional increases to cover higher feedstock costs.
For instance, increases for polypropylene (PP) prices could amount to about 28%, a number that is certain to be contested by buyers and government officials alike.
Propylene prices went up 8 cents/lb ($176/tonne) in the December-January period, and Argentina producers were only able to offset devaluation costs at the time.
At least one producer has been setting polyethylene (PE) prices in dollars, and converting to Argentina pesos at invoice time. That formula has worked fine at times when the devaluation was only a few cents every week.
But it remains to be seen whether the government will allow the large devaluation of late January to be treated with the same formula.
A polystyrene (PS) producer has announced a 12-14% increase for February, which would fall very short in terms of covering devaluation, but things could still change.
End users will also have a role in the discussions because ultimately they are the ones that absorb the hike.
Producers are reluctant to make comments related to February prices because they are afraid any statements to the media will affect their ongoing negotiations with customers and government officials.
One important palpable outcome of this situation has been the shortening of financial terms for commodity purchases. Payment terms have been cut in half by many.
Another uncertainty refers to the arrival of imports from Brazil, a Mercosur partner.
Until now, importers must submit a sworn declaration of anticipated imports (DJAI) and the government allows or disallows those imports. Lately, approval of those petitions has been slower, according to market sources.
These price increases affect inflation in the country and are certain to generate a reaction from organized labour when the negotiations of collective salary agreements start.
All of these factors are currently playing in market discussions, generating uncertainty about their outcome.
One market participant said that Argentine markets have gone through four or five situations like this one in the last 20 years or so, and most people are well prepared to navigate the problems and survive, which suggests that a comprehensive, collective compromise is in the making.