Argentine peso falls 12% in 2 days, roils plastics market

23 January 2014 21:40 Source:ICIS News

Argentine peso falls 12% in 2 days, roils plastics marketBy George Martin

HOUSTON (ICIS)--The Argentine peso fell to 7.75 versus the US dollar on Thursday, marking a decline of 12% in the past two days in the currency's worst performance since the aftermath of the country's 2001 economic crisis.

The steep devaluation of the peso has participants in the plastics market scrambling to interpret the news, aiming to develop a strategy to protect themselves from the potential changes that will likely ensue.

Producers were having internal meetings to discuss the situation and, for the most part, did not have any answers. The typical response on Thursday was: “We only know what the media is reporting. We hope to have an answer and a strategy in place in the next 24 hours, but it will depend on how the situation develops”.

Transformers are having similar problems. They wonder if their credit terms will remain unchanged or perhaps will be shortened to 15 days, cash only. Currently, the typical term is 60 days.

Companies wonder whether import permits will still be issued at the typical pace. The import permits are intended to preserve the country's reserves of US dollars.

Sellers of imported product debate the feasibility of conducting transactions in local currency and ponder the possibility of setting prices in dollars to protect themselves.

Those who can transfer extra costs downstream will try to do so, but the question remains whether the final consumer will respond to steep price increases.

Much of the uncertainty comes from guessing the next move of Argentina's Central Bank. The dollar has floated freely in the last two days. It is unclear whether this policy of non-intervention will continue.

Questions also surround domestic energy costs; whether the government will absorb the extra cost of imports without raising domestic tariffs for fuel, gas and electricity; and what the impact will be on inflation, already estimated to be above 20%.

One immediate effect seen in many sectors is a stop on deliveries of resins. Sellers would like to make sure they are selling at prices that will allow them to replenish stocks.

Some have made deliveries in the last two days but wonder if that was the right decision.

Thursday's drop in the peso was the steepest so far this week. On Wednesday, the peso closed at 7.14 to the dollar, down 3.7% from Tuesday's 6.885, according to the Banco de la Nacion Argentina.

At the start of the year, the peso was at 6.56 to the dollar.

The performance of the peso is the worst since March 2002, which immediately followed the country's economic crisis of 2001, according to the newspaper La Nacion.

The weakening of the official exchange rate was mirrored by that of the blue dollar, what Argentina calls its informal rate.

The blue dollar fell 7.49% to pesos (Ps) 13.06 on Thursday, according to the business newspaper Ambito Financiero. At the start of the year, it was at Ps10.30.

The weakening peso comes as Argentina continues to rely heavily on imports of energy, which it buys in US dollars.

Consumption has increased because the country is in the midst of a hot summer, with temperatures reaching 37 degrees Celsius (99 degrees Fahrenheit). Humidity makes the weather feel like 47 degrees, according to Ambito Financiero.

Additional reporting by Ron Coifman and Al Greenwood

By George Martin