OUTLOOK ’18: Latin America PP to face limited impact from expanding US capacity

HOUSTON (ICIS)–Polypropylene (PP) markets in Latin America are expecting increased propylene production in the US, but the impact in the region’s PP market will be limited.

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Production of propylene will increase significantly from early 2018 levels with the addition of three propane dehydrogenation (PDH) plants to the US market. However, there are no new PP plants coming online to consume the additional propylene volumes. The idea is that US producers will use idle PP capacity first, before investing on additional PP plants. Another fact is that other products derived from propylene, such as propylene oxide and solvents (gasoline components) among others, will have substantial capacity increases and will consume much of the new propylene production.

This suggests that PP markets will not be as long as polyethylene (PE) markets could become in 2018, and the impact on Latin America will be mild. With production of PP in Argentina, Brazil, Chile, Colombia Mexico and Venezuela, the region’s shortages are less important than those of PE. In addition, countries such as Argentina and Brazil will continue to have high import tariffs that will discourage the purchase of imported PP.

The markets with an open imports policy, routinely import relatively small volumes of PP. There will be some pressure on PP prices, but that will pale in comparison with the problems that the PE oversupply will bring in 2018.

Polypropylene production in Latin America is expected to remain stable in the short term. The region could have low-volume procedures such as debottlenecking to add capacity to existing plants, but they would still have to secure propylene to feed the new capacities.

There is one project in Bolivia that has received government approval, but that project will not be online before 2022 or perhaps later. The project seeks to build a PDH plant to produce propylene and a PP plant to polymerise the propylene. Despite approval, the project has faced several setbacks.

Increased propylene production in the US could help producers such as Colombia’s Essentia or Mexico’s Indelpro to secure volumes for their PP production. Those plants do not have enough propylene of local origin to polymerise.

In the case of Mexico, The North America Free Trade Agreement (NAFTA) could throw a curve to the polymers situation in that country if ongoing negotiations fail to produce agreement. The fear is that lack of agreement could end in termination of the deal. If that happens, Mexico will have to look for viable suppliers of feedstock and resins and the cost structure will change. On the other side, termination of the agreement would be harmful to the US petrochemical business because the US has a trade surplus with Mexico in this sector.

PP prices are about to come down from high levels derived from Hurricane Harvey shortages in the US Gulf, but prices may not continue to decline in 2018 because of limited supply. In Latin America, prices could even increase in countries with high import tariffs.

Major producers of Latin America PP include Indelpro in Mexico, Petroquimica Cuyo in Argentina, Braskem in Brazil, Esenttia in Colombia, Propilven in Venezuela, as well as Petroqium in Chile.