Venezuela’s woes hamper petchem markets

Economic peril is squeezing petrochemical producers as low oil prices cut government revenues and new mandates dictate what products can be manufactured. President Nicolas Maduro has declared a 60-day state of emergency to work on the crisis. (Xinhua News Agency/REX Shutterstock)

HOUSTON (ICIS)–Venezuela’s economic peril is squeezing its petrochemical producers as low oil prices cut government revenues and mandates dictate what products can be manufactured, including those made from plastic resins.

On 15 January, Venezuela President Nicolás Maduro declared a 60-day state of economic emergency as crumbling oil prices further threatened the government finances and the country moved closer to defaulting on its debts.

The decree could be extended for another 60 days, but it is already affecting the business of resin processors in the country, according to local market sources.

“It means that there is no money for imports,” a buyer of polystyrene (PS) resins said on Wednesday.

No new PS imports is bad news for a market which has struggled to be competitive amid a lack of resins as raw materials to process into consumer goods.

Estizulia, Venezuela’s sole PS producer, has been down for months, the market source added.

“It is unknown” when the plant will be back to operations, the source said.

Because of problems at Estizulia, some imports were heard to be allowed as an exception to the country’s strict trade rules. But that was before the lastest measure was implemented.

The government controls access to foreign currency necessary to buy imports through the Comision de Administracion de Divisas (Cadivi.) Access to the US dollar is usually a complex process and entails long delays.

A source in the polypropylene (PP) market said that because of the lack of resins to process, the plastic industry will only be able to produce 40% of its installed capacity. This information could not be confirmed.

PP production was said to be on-and-off with some interuptions, according to the PP source.

Low density polyethylene (LDPE) production was interrupted for almost two months. Production restarted on 20 December and appears to be steadier than before, a source in the PE market said.

No problem was heard in the linear low (LLDPE) and high density (HDPE) production lines. Pequiven and its subsidiaries are Venezuela’s sole raw material providers.

Venezuela’s economic problems worsened when crude oil started to fall in mid-2014. Prices went from $100/bbl to under $30/bbl in January, according to the ICIS global oil report on Thursday.

NYMEX index, according to ICIS assessments

Venezuela is dependent on crude oil exports for government revenues. Lower crude oil prices mean lower government income, less money to pay debts, to build roads, to pay for social programs or to distribute US dollars among industries when necessary. 

Credit agencies have had the country on default-watch for months.

Domestically, Venezuela’s economic emergency translates into long lines at the supermarket and other havoc, the PP source said.

Medicines, plastic bags, spare parts and other essential items have been limited, sources said.

To stabilise the situation, the government has established a priority list of consumer goods that resin processors must follow. It requires the processing of pharmaceutical and food containers first, at the expense of other consumer or industrial goods.

The chart below shows how the value of the Venezuela bolivar, traded in the parallel market, dropped drastically in the last three weeks. 

INSET PHOTO: A store owner counts his money in in Caracas, Venezuela. (Agencia EFE/REX Shutterstock)