OUTLOOK ’18: Latin America PVC faces uncertainty in early 2018

HOUSTON (ICIS)–The polyvinyl chloride (PVC) outlook in Latin America for early 2018 remains tentative, after markets weakened in November and December as expected and in line with precedent.

Photo by Hans Lippert/imageBROKER/REX/Shutterstock

The year-end holidays, along with destocking to minimise tax exposure, drove softening PVC markets and prices around the world, including in Latin America.

How Latin American PVC markets respond in the first quarter of 2018 will depend on various factors, which will continue evolving in late December and early 2018:

– Expected low inventories in early January;

– The strength of the Asia rebound after the Chinese New Year starting 16 February;

– Taiwan’s Formosa Plastics Corp’s (FPC) benchmark price announcements for each month;

– Slow PVC demand in the US on construction seasonality;

– Back to normal availability of US resin and precursors after Hurricane Harvey;

– High caustic soda prices driving chlor-alkali production rates; and

– GDP growth in each country in Latin America.

Additionally, the market outlook In South America depends on the country. While greater optimism was noted in Argentina as the economy recovers from the country’s recession of 2016, projections in Brazil were more cautious in the aftermath of its 2016 recession and of the Lava Jato corruption scandal.

Private and public construction projects are evident in Argentina and are driving the economy. PVC pipe processors in Argentina are no longer complaining about slow business, but stronger activity has led to greater competition and a reduction in PVC pipe margins.

Meanwhile, participants in Brazil hope for moderate growth, and that the government and the economy remain stable until President Michel Temer’s term in office ends with the general elections in October 2018.

Seasonality also tends to drive PVC demand throughout Latin America. PVC business generally weakens in the fourth quarter in North America, including Mexico, as construction activity slows with cold weather. On the other hand, building, along with PVC activity, is expected to pick up in South America with rising temperatures.

In Venezuela, markets in general are depressed. The population is focusing on obtaining scarce food, while facing shortages of medicines, personal hygiene and household items, and ignoring the absence of non-essential products, including downstream PVC finished goods.

PVC demand in the near future should be in line with expectations of GDP growth for each country in Latin America. Most countries in Latin America are growing below trend despite the region’s economic recovery, Fitch Ratings said on 11 October.

The following table from the International Monetary Fund (IMF) shows its GDP forecasts for the western hemisphere:

Fitch pointed out some trends that were benefitting Latin America. Commodity prices are recovering, external conditions are improving, inflation has fallen in most countries and borrowing rates are favourable, Fitch said. The ratings agency also noted monetary easing.

Countries such as Brazil, Argentina and Peru have had pro-business governments take office, and these have made some policy adjustments and reforms, Fitch said.

However, challenges still persist such as lower investment rates and lagging productivity, Fitch said. A heavy election calendar is coming up, with both Brazil and Mexico electing new presidents. Fitch said the elections could detract from reforms. Corruption cases are also making it more difficult to enact reforms.

Meanwhile, fiscal consolidation has proven to be difficult. The economic recovery has so far been shallow, countries are making less money from commodities, and governments have made uneven progress on reforms to boost revenues. They continue to face pressure to spend money, and many countries face additional costs from earthquakes and hurricanes.

Major producers of Latin America PVC include Mexichem, Braskem and Unipar Indupa.