APLA ’23: Brazil’s PE supply concerns rise as demand ticks higher

Bruno Menini

03-Nov-2023

SAO PAULO (ICIS)–Brazil’s concerns about short supply of polyethylene (PE) in the fourth quarter continue mounting as imports could fall while demand is expected to rise slightly heading into this year’s annual meeting of the Latin American Petrochemical and Chemical Association (APLA).

  • Weather conditions could affect imports into Brazil
  • Planned maintenance shutdowns to affect domestic supply
  • Imports into Argentina heavily curtailed

Until August, PE supply was not a concern for the Brazilian chemicals market, but a drought in Brazil’s northern states has changed the scenario.

DROUGHT IN THE NORTH…
The inland Port of Manaus, in the state of Amazonas, is one of the main gateways for PE into Brazil; the region has large converters and is a free trade zone, making imports more competitive.

However, the region has been struggling with a severe drought, causing the Port of Manaus – where the rivers Negro and Amazonas meet – to record its lowest water level in 121 years.

The Port recorded a water level of 13.59 metres in mid-October, the lowest level since records began in 1902 and well below the previous record lows of 2010.

Many shipping companies have ceased their services to the Amazonas state capital because, in some critical passage points, the water has reached a level that makes it impossible to continue maritime operations.

Many cargoes on board vessels bound for Manaus will have to be unloaded in other ports like Pecem and Vila do Conde, but it remains unclear when these cargoes will be re-embarked to Manaus.

According to one distributor, this situation has caused many converters to transfer their production to plants located in other regions, thus generating an “artificial” demand for PE due to the impossibility of receiving imports in Manaus and shipping finished products from there to other regions.

Another source said this situation should only improve in Q1 2024, causing a large volume of backlogged cargo to land in Manaus next year, while a local converter said it expects the situation to improve in November.

…AND FLOODS IN THE SOUTH
Meanwhile, in Brazil’s south heavy rains and flooding have caused shipping companies to omit ports mainly in the state of Santa Catarina, such as Navegantes, Itajai, and Itapoa ports.

Santa Catarina is another important gateway for PE imports, mainly from Argentina and the US, as the state has several warehouses that distribute material to the local market.

Should this situation continue, Brazilian converters will look for PE supply options in the domestic market, and that is set to benefit Braskem, the only domestic producer.

In recent months, Braskem has been running its plants at lower operating rates than the average of past years; during the third quarter, capacity utilisation at the company’s petrochemical crackers stood at 68%.

In addition to the weather conditions that are affecting supply, Braskem has scheduled maintenance for one of its crackers in Bahia, which is to affect PE production at the site.

In September, PE imports dropped around 15% on month-on-month and year-on-year basis, totalling nearly 107,500 tonnes when all grades are combined: high-density polyethylene (HDPE), low-density polyethylene, (LDPE), and linear low-density polyethylene (LLDPE).

September posted the third-lowest import volume of the year, after February and April, the latter the only month of 2023 when imports stood below 100,000 tonnes.

“We will continue to see a decrease in imports until the end of the year, mainly due to the weather conditions in Manaus”, said a source.

DEMAND TO PICK UP
Brazil’s PE supply woes will be met by slightly increasing demand as Brazil heads toward the summer season and the year-end holidays.

This is a period when sales tend to increase, especially in the consumer goods, food, and beverage industries.

“August, September, and October tend to be the months with the strongest sales due to the run-up to the year-end celebrations,” said one distributor.

On the other hand, the economic slowdown in Latin America in 2023 – although the latest projections by the IMF were upgraded on the back of strong growth in Brazil and Mexico – has caused lower-than-expected demand for recycled PE (R-PE), according to Paula Leardini, senior analyst for plastics recycling at ICIS.

“Despite markets unique dynamics, most countries have been hit by the weaker-than-expected demand for recycled plastics in 2023, including Brazil and other Latin American countries,” said Leardini.

“Among other reasons, high inflation and low economic activity have been negatively affecting consumers’ purchase power, thereby exerting a downward influence on demand for recycled plastics.”

She added that despite the short-term softening, R-PE demand is expected to increase in coming years on the back of the growing regulatory mandates as well as brand-owners commitments.

Looking forward, Thais Matsuda, ICIS Chemical Markets Analyst – Latin America, said growth in major regional economies is expected to slow down 2024, year on year, according to projections by the IMF or the World Bank, which are also in line with ICIS’ own projections.

Amid a slowing economic outlook, demand for PE is also to post moderate growth.

South and central America demand for all PE grades combined is predicted to rise by 1.4% in 2024, year on year. While the rate is set to be higher than the weak 1% increase expected this year, it nonetheless will be the second-lowest increase in demand levels since 2017.

“Putting south and central America in a broader context, global demand for PE is predicted to rise by 2.1% in 2023 and 2.8% in 2024, with the northeast and southeast Asia leading the ranking,” said Matsuda.

“Thus, despite the improvements in the region in 2024, it is expected to be at lower levels than the global growth average.”

ARGENTINA, MEXICO
In the wider region, PE supply across Latin America’s West Coast (WC) countries is expected to remain sufficient in Q4 for most grades.

Some sources have said supply of low-density polyethylene (LDPE) is tight, but supply of high-density polyethylene (HDPE) is improving after some tightness in past weeks.

Argentina has enough supplies to meet local demand, while the country’s financial situation remains delicate, and imports are still restricted due to a lack of foreign currency.

It is practically impossible to obtain an import license (SIRA), according to a source in Buenos Aires, adding it was not being able to pay for the imports purchases that had already been agreed.

Most sources in Argentina concur the most pressing worry is a potential currency devaluation; this, in turn, is causing a rush for goods because nobody wants to keep pesos in their pockets, said another source.

Following the first round of the presidential election on 22 October, the country will elect a new President on 19 November.

In Mexico, after both local producers – Braskem Idesa and Pemex  – shut down their plants in September due to technical difficulties, the supply situation is improving.

“HDPE blow molding and injection molding supply is healthy but supply for LDPE fractional and HDPE film is still tight, but improving,” said a source in Mexico.

“We expect the situation in November will be much better than in October.”

Major producers in the region include: Dow, Braskem, Ecopetrol, Pemex, and Braskem Idesa.

PE, the most widely used plastic in the world, is primarily found in packaging including plastic bags, plastic films and geomembranes.

The 43rd APLA annual meeting takes place 11-14 November in Sao Paulo, Brazil.

Focus article by Bruno Menini

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