competition in latin america: blessing or curse?€¦ · in latin america and other regional...

MARKET INSIGHT

POLYMER COMPETITION

IN LATIN AMERICA

BLESSING OR CURSE

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01Copyright 2017 Reed Business Information Ltd ICIS is a member of RBI and is part of RELX Group plc ICIS accepts no liability for commercial decisions based on this content

POLYMER COMPETITION IN LATIN AMERICA BLESSING OR CURSE

HOUSTON (ICIS)--The upcoming polymer production increase in North America is expected to generate increased competition for market share in Latin America where current market conditions are mixed

The new US production can have a profound impact on the region andor be a non-starter in some countries Are winners and losers likely to emerge out of this new reality

In Latin America three distinct scenarios define current trade patterns

a) Countries that have no industry to protect and low or no import tariffs

b) Countries that have local industry but keep tariffs moderate

c) Countries that have local polymer industry and high import tariffs

In the first category are countries such as Chile Ecuador Peru and most Central American and Caribbean nations

Import tariffs are typically low or zero and generally they buy resins on price They tend to get low prices and logistics are an important factor in the purchases

The second category lists countries like Mexico and Colombia Chile could be included here too but only in polypropylene (PP) Chilersquos polyethylene (PE) production ceased in May 2014

These countries have a local industry to defend but they keep import barriers low to ensure that domestic activity is competitive enough to coexist with imports Polymer prices in these countries are usually competitive in the international market

In the third category are countries such as Argentina Brazil and Venezuela They have a well-established polymers industry and high import tariffs to protect it

Traditionally these countries have some of the highest prices on the planet Custom duties insulate them from foreign competition and their finished products are generally not competitive in international markets

The upcoming petrochemical production increase in North America spurred by inexpensive shale gas will hit Latin America markets at the end of 2017 but may reach full-force in 2018

The impact on the first two country categories is easier to predict Drastically increased supply in countries that embrace free trade will result in lower overall domestic prices

We already see this scenario at work in Mexico where domestic production has increased after the entrance of Braskem Idesa

Mexicorsquos new production has taken market share from state-owned Pemex and from US imports Pemex participation in the polymers market declined because of diminished ethane availability to feed its crackers

Braskem Idesa and sellers of US imports rushed to fill the void The fight for market share became a price war and Mexico has today some of the most competitive PE prices in the world

In the first four months of 2017 US exports to Mexico for all PE grades were down by 164 compared with the same period of 2016 according to American Chemistry Council (ACC) statistics

Mexicorsquos exports of PE resins have increased about 30 a local source said citing March statistics In March Mexico exported 46000 tonnes of PE Of that amount about 33000 tonnes were HDPE and the rest LDPE All these exports were from Braskem Idesa

Pemex sources said that despite their market share losses the increased competition is good for Mexico good for buyers and good for everyone It has promoted business and invigorated the full supply chain

Increased supply of US plastic resins in Colombia Peru Ecuador Chile Central America and the Caribbean could have a similar impact

However can we expect the same in Argentina Brazil and Venezuela

Venezuela is increasingly isolated in terms of trade For this reason we will keep it out of this discussion

Letrsquos take the other two as an example In Brazil 14 import tariffs and a number of small fees that add up to more than 20 protect Braskem the local producer In addition Brazil has a complex tax system

By George Martin MAY 2017

WHITE PAPER



The only Mercosur country that can compete tariff-free in Brazil is Argentina but its exportable polymer volumes are not significant Braskem exports PE and PP resins to Argentina to offset their exports

Dow Chemical has the PE production monopoly in Argentina With similar customs protection the producer can keep prices at the import parity and at times slightly higher

Anyone who imports PE material must add about 23 to the CFR (cost and freight) Argentina price and compare this value to the domestic price to determine whether the deal is viable Only a few can import tariff-free if the finished product is exports-bound

PE and PP prices in both countries are some of the highest in the world Transformers usually complain that they cannot compete with finished products from nearby countries

Will the new production in North America affect market conditions in these two countries We do not see much of a chance that this will happen

A large distributor in Argentina said that US Gulf material will not have direct impact on the Argentine polymers market with the existing regulations but it may displace Braskem product from other markets in Latin America This in turn could drive Braskem to seek a larger market share in Argentina

Most large distributors in Argentina are already committed to taking material from Dow andor Braskem and could not take US material from a third party without negative consequences the distributor added

Whatever demand is left in the country would not be enough for another distribution channel Another possibility would be increased imports from Dow into Argentina particularly LDPE that is in short supply

A corollary to all this would be that the use of regulations for the protection of domestic industries is easily defensible but taken to the extreme over-protective duties lead to abuse and loss of competitiveness for the entire downstream chain

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About the authorGeorge Martin joined ICIS in 2004 as a Senior Editor on petrochemicals covering polyolefins in Latin America and other regional chemicals and plastics He has served as Deputy Bureau Chief and as an analyst before becoming Editor-in-Chief Latin America in 2016 He has reported and analysed crude oil and petrochemical markets since 1994 focusing on Latin America George also has experience in field construction and process plant piping



HOUSTON (ICIS)--The upcoming polymer production increase in North America is expected to generate increased competition for market share in Latin America where current market conditions are mixed

The new US production can have a profound impact on the region andor be a non-starter in some countries Are winners and losers likely to emerge out of this new reality

In Latin America three distinct scenarios define current trade patterns

a) Countries that have no industry to protect and low or no import tariffs

b) Countries that have local industry but keep tariffs moderate

c) Countries that have local polymer industry and high import tariffs

In the first category are countries such as Chile Ecuador Peru and most Central American and Caribbean nations

Import tariffs are typically low or zero and generally they buy resins on price They tend to get low prices and logistics are an important factor in the purchases

The second category lists countries like Mexico and Colombia Chile could be included here too but only in polypropylene (PP) Chilersquos polyethylene (PE) production ceased in May 2014

These countries have a local industry to defend but they keep import barriers low to ensure that domestic activity is competitive enough to coexist with imports Polymer prices in these countries are usually competitive in the international market

In the third category are countries such as Argentina Brazil and Venezuela They have a well-established polymers industry and high import tariffs to protect it

Traditionally these countries have some of the highest prices on the planet Custom duties insulate them from foreign competition and their finished products are generally not competitive in international markets

The upcoming petrochemical production increase in North America spurred by inexpensive shale gas will hit Latin America markets at the end of 2017 but may reach full-force in 2018

The impact on the first two country categories is easier to predict Drastically increased supply in countries that embrace free trade will result in lower overall domestic prices

We already see this scenario at work in Mexico where domestic production has increased after the entrance of Braskem Idesa

Mexicorsquos new production has taken market share from state-owned Pemex and from US imports Pemex participation in the polymers market declined because of diminished ethane availability to feed its crackers

Braskem Idesa and sellers of US imports rushed to fill the void The fight for market share became a price war and Mexico has today some of the most competitive PE prices in the world

In the first four months of 2017 US exports to Mexico for all PE grades were down by 164 compared with the same period of 2016 according to American Chemistry Council (ACC) statistics

Mexicorsquos exports of PE resins have increased about 30 a local source said citing March statistics In March Mexico exported 46000 tonnes of PE Of that amount about 33000 tonnes were HDPE and the rest LDPE All these exports were from Braskem Idesa

Pemex sources said that despite their market share losses the increased competition is good for Mexico good for buyers and good for everyone It has promoted business and invigorated the full supply chain

Increased supply of US plastic resins in Colombia Peru Ecuador Chile Central America and the Caribbean could have a similar impact

However can we expect the same in Argentina Brazil and Venezuela

Venezuela is increasingly isolated in terms of trade For this reason we will keep it out of this discussion

Letrsquos take the other two as an example In Brazil 14 import tariffs and a number of small fees that add up to more than 20 protect Braskem the local producer In addition Brazil has a complex tax system

By George Martin MAY 2017

WHITE PAPER





















FORECAST REPORTS


PRICING INFORMATION


NEWS INFORMATION























FORECAST REPORTS


PRICING INFORMATION


NEWS INFORMATION



competition in latin america: blessing or curse?€¦ · in latin america and other regional...

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