INSIGHT: Brazilian recovery, Argentine projects among APLA highlights

Source: ICIS News

2017/11/16

By Al Greenwood

RIO DE JANEIRO, Brazil (ICIS)--The economic recoveries in Brazil and Argentina are trickling down to the nation's chemical industries, which are seeing demand rise and – in Argentina – the possibility of new capacity.

INSIGHT: Brazilian recovery, Argentine projects among APLA highlightsThese were among the highlights of this year's annual meeting held by the Latin American Petrochemical Association (APLA), which ended on Tuesday.

Brazil has finally snapped out of one of its worst recessions, in which GDP fell by more than 3% in 2015 and 2016. The economy should expand by 0.73% this year and by 2.50% in 2018, according to the latest survey from Brazil's central bank. The International Monetary Fund (IMF) is less optimistic, putting 2018 growth at 1.5%.

Chemical distributor Pochteca, Brazilian plasticizer producer Elekeiroz and polyolefins producer Braskem have noticed higher demand from various sectors of the Brazilian economy.

Braskem expects average growth of 4% in Brazil for the three resins it sells to the market: polyethylene (PE), polypropylene (PP) and polyvinyl chloride (PVC), said Edison Terra, vice president of Braskem's business unit for polyolefins, renewables and Europe.

The end markets that are driving growth are agriculture, automobiles and packaging, Terra said.

Brazilian automobile production was hit particularly hard during the downturn. Production rates are now approaching pre-recession levels.

Agriculture has been the true star of the recovery, expanding by double-digit rates.

One laggard is construction, which Elekeiroz and Braskem said was still struggling.

A source attributed the slowdown to a glut of housing.

Political uncertainty could hold the economy back in 2018. Brazil is holding presidential elections next year, and it will likely have the largest slate of candidates since the end of military rule.

Companies may choose to hold off on investments until they get more clarity about who will be the next president.

A longer standing problem that is holding back the Brazilian economy is logistical constraints. Braskem CEO Fernando Musa brought these up during a CEO panel at the APLA annual meeting.

Improving the nation's roads, ports and pipelines are on the top of a long list of priorities, he said.

Logistics also made the wish list of the Argentine participant in the CEO panel, Santiago Martinez Tanoira, executive vice president, exploration and production, for state energy producer YPF.

Like Brazil, Argentina is also recovering from a recession, although its downturn was shallower and its recovery is steeper.

The IMF expects GDP to expand by 2.5% this year and next year.

Allies of Argentina's business friendly president, Mauricio Macri, performed well during the nation's recent mid-term elections, which should quicken the pace of more economic reforms.

Martinez Tanoira, in fact, would like Macri to speed up fiscal and labour reforms.

If Argentina can maintain its momentum, it could be the site for the next large petrochemical project in Latin America.

Continued recovery and reforms could increase domestic demand and make companies feel more secure about investing in the country. Argentina is also a member of the Mercosur trading bloc, giving it access to Brazil, Latin America's largest economy and the second largest in the western hemisphere.

Energy companies are now exploiting the Vaca Muerta formation, allowing Argentina to reverse its declines in natural-gas production.

Argentina could have the fuel and the feedstock to add new petrochemical capacity.

Jorge Buhler-Vidal, director of Polyolefins Consulting, has said that Argentina would be the most likely country in Latin America for new capacity, and YPF is reviewing feedstock for possible projects.

Any new plants would follow the region's most recent project, the Ethylene XXI complex built by the Braskem Idesa joint venture in Mexico.

The project was deemed a success, but it is likely to be the last major plant in Mexico before the country can increase ethane supplies.

While Ethylene XXI has a long-term contract that provide it with enough ethane for its cracker, Mexico's other ethylene units are not as fortunate.

Declining oil production in Mexico has caused ethane supplies to fall, leading to lower operating rates for these crackers.

In December, Mexico could begin importing ethane from the US at the port of Pajaritos, near the country's petrochemical hub in Coatzacoalcos.

Pemex has been modifying an ethylene tank in the port so it can receive ethane, said Jose Uriegas, CEO of Grupo Idesa. Those imports should allow Pemex to run its crackers at rates of 50-70%.

Additional reporting by Ron Coifman