AFPM ’19: Latin America PP markets poised to stop sliding

Source: ICIS News

2019/03/23

HOUSTON (ICIS)--Latin America polypropylene (PP) prices appear to have found a bottom after a series of declines and could revert the trend in the short term with the help of rising crude oil prices in international markets.

Offers from Asia and the Middle East heard in Latin America have been as low as $1,150/tonne CFR Pacific coast of South America, but the most recent offer levels from those regions are rising, with prices near $1,300/tonne for homopolymers and higher for copolymers.

Heading into this year’s International Petrochemical Conference (IPC), the price of West Texas Intermediate (WTI) crude oil was nearly at $60/bbl, a level last seen in November last year, when crude oil prices were on their way down.

WTI hit a low of nearly $45/bbl in December and has been recovering in the last three months. At first, it was not clear whether the recovery would be sustainable, but it appears that it will be.

Chemical prices in Asia have been on the rise, and that has caused offers from Asia to be higher in recent weeks.

Argentina’s March polypropylene (PP) prices remain under pressure from declining feedstocks and a year-long recession that shows few signs of ending, domestic sources said.

The March decline is in line with the decline of propylene in the US Gulf, where the February contract dropped by 1.5 cents/lb ($33/tonne). US Gulf PP contracts in February settled down 2 cents/lb ($44/tonne).

Initially, the local producer is reducing March prices by $30/tonne, following feedstock costs.

Market participants are having a difficult time to drum up sales because domestic demand in Argentina has weakened for all sectors.

Currency devaluation initiated this recession. The International Monetary Fund (IMF) rescued Argentina with a $57bn loan. The loans come with belt tightening recommendations that resulted in the elimination of export subsidies and the application of a new tax for exports.

Exports have been a viable option to offset weak domestic demand, but the new regulations have removed incentives to export. Brazil, the main destination of Argentina’s PP exports, has lost appetite for Argentine PP, while receiving supply from many other sources.

Interest rates soared in Argentina to more than 70% and credit tightened for all users. In addition, there were increases in energy that caused tariffs for all essential services to skyrocket.

Consumers have lost buying power because of lagging salaries amid increases in cost of living. The dollar crisis affected consumption patterns.

The summer vacations are partly responsible for the weak demand, and some hope demand will improve this month in the back-to-school season.

Although the currency appears stable at near Pesos (Ps) 40 per dollar, the effects of the recession are still slowing down the economy.  Sales of new cars have dropped drastically and consumption of PP has declined for product lines such as, bazaar, white line, and caps and closures.

Domestic prices have declined for months, and competition from PP imports is growing. PP sales in 2018 were estimated to be down by 20% year on year. Market participants expect zero growth in the PP market this year. The country could experience 1.6% GDP contraction in 2019, according to some economic estimates.

March PP prices have been steadier in Brazil, perhaps because the local currency had a new round of devaluation versus the US dollar.

The decline has been slower in Mexico because export volumes from the US Gulf have not been as available until now. The pressure in this market emanates mainly from lower feedstock propylene prices that are affecting downstream polymers.

B8F10981A5209F4489B1CF5AF4D9BA62.jpgDomestic PP prices have declined faster in Chile than in Mexico, but this trend could change in the near future, affected by higher crude oil prices.

With PP availability at a fraction of that of PE, recovery for this commodity can happen quickly.

Hosted by the American Fuel & Petrochemical Manufacturers (AFPM), the IPC takes place on 24-26 March in San Antonio, Texas.

Focus article by George Martin