Latin America polyethylene prospects down in the short term

HOUSTON (ICIS)–Latin American polyethylene (PE) prices are headed down, under pressure from lower crude oil prices worldwide and long supply in the US Gulf, where production capacity has increased in 2018.

Another important factor has been the impact of a strong US dollar in local currencies. This has been more noticeable in Argentina, where the local currency has had a strong devaluation in 2018. However, a strong dollar has affected many other Latin American nations, too.

In Mexico, the main problem has been the proliferation of offers from US PE producers. With all export channels for trade between the two countries firmly established by years of commerce under the North American Free Trade Agreement (NAFTA), Mexico has long been a preferred destination for US PE exports.

Mexico’s own PE production has increased in the last three years, since the Ethylene XXI complex came on line, and this year in particular, because Pemex is importing ethane to reactivate its own PE production.

The result has been oversupply of PE plastic resins in Mexico, causing prices to gradually decline.

Pemex, the state-owned PE producer in Mexico, increased prices of all grades of polyethylene in November by 2.5% on low inventories, but has given 3% discounts in early December, effectively erasing the November increases.

Another domestic producer indicated that prices could decline by about 3 cents/lb ($66/tonne) in December.

Competition from US imports remains strong with high inventories in the US Gulf, and a strong drive by US suppliers to increase sales volume.

Railroad congestion has eased in the country and weather concerns have dissipated in recent days. Deliveries are now normal and there are no logistics problems in the country.

Pemex production has grown to about 35,000 tonnes/month for PE with the new ethane provision from Vitol. Ethane is first destined to ethylene oxide and ethylene glycols in Mexico, and the rest to PE plants.

The Morelos swing plant, currently used only for linear low density polyethylene (LLDPE) production, stopped on 28 November for scheduled maintenance and will be down for 30 days, according to Pemex sources.

In the Cangrejera complex, (LDPE), production is up, with two out of three trains operating normally. This is the new reality for this plant.

High density polyethylene (HDPE) production is normal in the Asahi and Mitsui plants, with all four trains operating.

In Brazil, Braskem has been busy reducing PE prices in November and again in December to keep imports out of the country.

In Argentina, high inflation (48% in 2018) and high interest rates (more than 60%) have put a damper on demand for plastic resins, but prices have not declined by much. Dow has been less prone to lower prices than Braskem in Brazil has, using its condition of sole domestic producer.

Both countries have high tariffs protecting their plastic resin producers, but Braskem, also a monopoly, has been more responsive to external price pressures.

Logistics play a big role in the availability of product for South America. Changes in the shipping industry have reduced the available ships in that route.

Most countries in the Pacific coast of South America have seen PE import prices come at increasingly low levels. For the most part, countries such as Colombia, Ecuador, Peru and Chile have low or no import tariffs for PE.

This has increased pressure on regional producers, which are striving to keep market share.

There are initiatives by US producers to increase PE prices in January or February, but it is not clear what will change in 2019 to support those initiatives. The US-China trade war has changed product flows in the world, but trade volume has not changed by much, at least for PE.

The decline of LDPE prices in Latin America is accelerating at the end of the year, even in protected markets such as Argentina and Brazil.

Focus article by George Martin