HOUSTON (ICIS)--Latin America polypropylene (PP) markets could continue to fall in the first quarter of 2019, under pressure from cheaper offers from Asia and the Middle East, and falling feedstock prices in benchmark US markets.
In South America offers from the Middle East and Asia gradually pushed regional producers to compete and prices eroded faster than in Mexico or Central America in 2018.
Argentina’s expectations for PP demand revival have been postponed well into 2019, when the economy is expected to rebound, led by agricultural exports. A strong currency devaluation caused the very low demand experienced in the second half of 2018.
Local market participants do not envision a quick recovery, because inflation and high interest rates are discouraging credit sales. The local producer concentrated efforts in Brazil, the country that offered the best netback.
Brazil received high volumes of PP from Colombia too, in addition to material from the Middle East.
Braskem, the sole PP producer in Brazil, soon reduced prices for all grades in November and December. Demand softened with the year-end holidays and with production closures by transformers.
Market players in Brazil expect this situation to continue in the first quarter, although with some improvement in January demand derived from low inventories in the chain.
Jair Bolsonaro, the new president as of 1 January, has spurred expectations of economic improvement in Brazil, but actual changes may not be visible until March. This means that January and February demand will be uncertain while feedstock prices are slipping.
In Chile, PP prospects remain bearish for 2019, when shipments from Vietnam, the Middle East and India could force further price reductions in the Pacific coast of South America. This situation will be replicated in Peru, Ecuador and Colombia.
Prices in Mexico have shown some staying power, with tight volumes in the US Gulf, which provides the main competition in Mexico. Producer Indelpro maintained high prices for most of December, citing low inventories, but this situation will be hard to sustain in January and beyond.
Crude oil prices could be a factor of change in 2019, if OPEC members and other producers are willing to cut oil production.
PP prices declined gradually at the end of 2018, in part because feedstock propylene prices have declined, as propane dehydrogenation (PDH) plants stabilise operations.
November propylene contracts in the US Gulf were the catalyst with a 10 cent/lb ($220/tonne) decline that led the way for more discounts in December.Brazilian PP margins have remained high despite recent price reductions and remain at the highest levels of the last 12 months.
Focus article by George Martin
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