LatAm PP, PS firms hold back on oil pass-throughs

Focus article by Marianela Toledo

HOUSTON (ICIS)–Latin American polystyrene (PS) and polypropylene (PP) sellers are not running into the market to immediately pass along the rising price crude oil to resins buyers, as has been the usual practice in the past.

In recent weeks, market discussions have centred on economic problems, increasing political uncertainty, cheaper monomer prices in Asia, all of which have combined to weaken demand. Because of these trends, producers are rethinking pricing tactics that might further erode demand.

PP prices for some buyers have actually fallen in Argentina, and imports prices are expected to decline in Mexico, according to a market source tracking US price reductions.

In Colombia, the US dollar has strengthened against the peso on increased expectations that the Federal Reserve will raise interest rates, according to information from the Colombian Minister of Finance.

Peru will hold run-off elections on 5 June. This has created market volatility because some buyers are focused on the possible fallout of the election results and are holding off on purchases, the source said.

Brazil’s economy is volatile because of political turmoil. President Dilma Rousseff was suspended from her office pending impeachment proceedings.

In addition, demand is weak in Argentina because of high inflation and rising prices for everything from gasoline to basic goods. As an example, vehicle production in Argentina fell 3.8% in April, according to data earlier this month from the Argentine Automakers Association (ADEFA).

The Venezuelan economic crisis has limited the raw materials available to make plastic bottles or bags.

All of the economic volatility has pressured demand lower. As a result, PS buyers are seeking discounts despite the rise in oil prices.

“Clients have the expectation that prices are going to drop,” the source from Colombia said.

Making price increases even more difficult are falling prices for styrene monomer in Asia.

The source said buyers expect to get discounts for PS immediately, but “shipping costs rose”, because of the increase in oil.

Offers from the US remain competitive among international sellers. US offers to the Andean region, South and central America were heard at $1,230-1,260/tonne for crystal resins.

Colombian export prices dropped by about 4% early in May, and the recent currency devaluation will make those offers even more attractive to export customers in the region.

In Brazil, domestic buyers were said to have received some discounts, although this was not confirmed by a majority of market participants.