Latin American currencies rebound may help stabilise chems

Marianela Toledo

01-May-2015

Latin American currencies rebound may help stabilise chemsHOUSTON (ICIS)–A small recovery in Latin American currency values against the US dollar may help importers of plastics resins gain more purchasing stability after plunges in March thwarted business activity and kept some plastics processors from being able to obtain raw material.

Market participants now hope for a more stable environment that will give more confidence to business transactions.

Recent value gains of Latin American currencies may signal that the trading market is stabilising, Mark Jones, Joseph D Jamail Chair in Latin American Studies at Rice University, said in an interview with ICIS.

Domestic resin prices seemed to have stabilized, as well, after a spate of increases based on the currency changes.

In Brazil, the domestic real, which lost nearly 30% of its value against the dollar between late January and 20 March, traded at 2.90 on 27 April, a 12% gain compared with its value on 23 March. After a similar drop in February, the Colombian peso by 27 April had regained most of the value it had lost, trading at PS2,415 to the dollar, up from PS2,600 on 16 March. The Mexican peso in April had regained about 2% after falling about 11% against the dollar in March.

Those currency devaluations were likely efforts to give a boost to the respective country’s export business.  

“Governments depreciate (currencies) in order to make export trades more competitive,” Jones said.

But it wreaked havoc on importers.

Some Latin America plastics makers were caught off-guard by the devaluations and, in some cases, had to pay much higher prices than expected for raw materials when their currencies didn’t go as far as they had four weeks earlier. Some had to stretch out payment terms to suppliers.

The sudden changes also caused some market players to worry about the overall stability of their economies and fear what might be in store for their own industries. Some forestalled making purchases while prices started to move up.

In Brazil, polypropylene (PP) prices rose R800/tonne in March alone. In Colombia, PP prices hiked COP350/kg in March. 

Prices also rose in March in the polyethylene markets of Colombia, Brazil and Mexico. 

Sellers pointed to the domestic currency devaluations as the main culprit, which also included tight supply and higher global prices. 

“No one wants to keep inventories (paid for at a higher price),” said a source in the US that exports to Latin America. “A propylene buyer said he couldn’t pass the increase to his customers because demand is too low, and they just don’t want to pay it,”

And it wasn’t just raw materials costs.

In Argentina, a buyer of polystyrene said that, although he had received some retroactive discounts for the polystyrene he buys to produce cups and other containers used in advertising, his own production prices are higher because of labor and transport costs associated with devaluation.

All along, he has struggled to maintain margins.

“Now, customers ask for the discount and I have to give it to them, but my own costs are higher.”

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