LatAm PE in ‘perfect storm’ as overcapacities meet slowing economy – Brazil distributor

Jonathan Lopez


SAO PAULO (ICIS)–The Latin American polyethylene (PE) market is heading into a “perfect storm” as the economy slows down while new global capacities continue coming on stream, according to the director at Brazil’s chemicals distributor Piramidal.

Wilson Cataldi, director at the company he founded in 1985, said PE coming from the US is currently “flooding” Latin American markets, including its largest economy of Brazil, which is making production for non-US producers challenging.

He added that Brazil’s economy is currently entering a downturn which presents a “very difficult” situation for a new government presided over by Luiz Inacio Lula Da Silva since January.

The US shale gas boom and associated increase in the supply of natural gas liquids (NGLs) such as ethane, key for the polymers industry as it can be transformed into building block ethylene, is now showing its effects on the PE market and, to a lesser extent, on polypropylene (PP).

It was always clear that US PE producers had export markets in mind when they planned their investments, and it was always clear that, apart from plastics-hungry, developing Asia, the Latin American markets would be a natural export destination.

The effects are now in full view. Producers in Latin America with no access to such affordable feedstocks are taking a hit.

Brazil’s petrochemicals major Braskem, a bellwether for the region’s petrochemicals industry, posted heavy losses in 2022 as high feedstocks costs met falling profit margins caused by lower selling prices.

“A perfect storm is coming. Latin America is flooded with US PE, and this is expected to continue for at least two or three more years. Supply coming from the US to Brazil, no matter what the import tariffs are, pressures prices down and that is going to continue for a while,” said Cataldi.

“There are several factors which indicate a perfect storm is brewing. There is a global slowdown, which is also affecting Brazil, while there is growing PE supply – the whole world is going into a period of lower prices, for longer.”

Cataldi went on to say that if a normal downturn cycle can last two or three years, PE’s overcapacity crisis “could last four or five” years, an uneasy situation for any polymers producer outside the US.

“There is plenty of capacity coming online while the market is retreating,” he said.

Cataldi mentioned the import tariffs after the Brazilian government hiked them for several polymers following intense lobbying from Braskem, the key PE producer in Brazil.

While smaller players who import product said their costs would spike after the import tariffs increase, both Braskem and Brazil’s chemicals trade group Abiquim welcomed the measure.

According to Piramidal’s director, however, the import tariff hike was expected after Braskem’s losses in 2022. As Brazil’s state-owned energy major Petrobras owns a 36% stake in Braskem, the performance of the petrochemicals producer can be considered a matter for the state to take action on.

“All countries use these type of instruments [to help their domestic industries]. The new government is very much about intervening in the market if that saves jobs. For the Brazilian economy, I understand the hike in imports: without that sort of external help, Braskem would find producing very difficult,” he said.

Cataldi said his preference would be, however, for a free market in which the government has little influence.

The new Brazilian government which took office in January has promised to increase social spending, but Cataldi said that promise could be difficult to fulfil given the slowing economy, which could not generate the tax hikes required to expand the state’s reach.

One economic sector which could do with some government help is automotive, with several Brazilian automobile plants going idle due to poor demand.

Automotive majors Hyundai and General Motors have told ICIS some of their plants are currently idled.

“Brazil’s vehicle production stood in February at 130,000 units, the lowest for 17 years. As interest rates remain high [at 13.75%], the recovery will take some time: consumers are not spending on durable goods such cars, TVs, fridges…” said Capaldi.

Earlier this week, the head for the Americas at Saudi petrochemicals major SABIC also said to ICIS the crisis afflicting durable goods consumption was hitting the petrochemicals industry hard.

Overall, however, Brazil’s new cabinet still lacks concrete economic plans which could bring back confidence to both businesses and consumers, said Cataldi.

In a more general reflection on Brazil’s performance, Cataldi said the country’s politicians tend to lack the required long-term vision for the country to prosper.

“There is still a lot of suffering in Brazil linked to social inequality. Interestingly, the size of the Brazilian economy was equal to that of China in 1970: look at where China is now, and look at Brazil,” he said.

“When you ask what went wrong, my answer would be: we lack leaders committed to the long term but, instead, they are obsessed with the short-term electoral cycle. I have been nearly 40 years running Piramidal: today, I am taking decisions that will affect the company’s performance in 10 years.”

Piramidal employs 200 workers and has 10 distribution centres in Brazil.

In 2022, it moved 100,000 tonnes in volumes, and posted sales of Brazilian reais (R) 1,3bn ($245m), according to Cataldi.

This interview took place in Sao Paulo during the plastics trade fair Plastico Brasil, which runs on 27-31 March.

($1 = R5.09)

Front page picture: Petrochemical facilities in Deer Park, US state of Texas; archive image
Source: David J Phillip/AP/Shutterstock

Interview article by Jonathan Lopez


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