Whats ahead for Latin American polymer producers with the impact of US shale gas

1. © 2013 Platts, McGraw Hill Financial. All rights reserved.
Survivor Latin America: Small polymer
makers ponder moves ahead of US
petrochemicals boom
By Bernardo Fallas | July 18, 2013

2. What’s the petrochemical outlook for Latin
America?
Want to find out more, why not join us in San Paulo
Presentations will be in English, with a Portuguese translation available.
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3. The Question
The US petrochemical renaissance could spell the death
of the small polymer producer in Latin America.
Or not?
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4. The US Impact & cheap feedstocks
• But there’s no denying that the threat facing these
companies is quite real and quite easy to figure out.
• US olefins production, particularly ethylene, is set to
expand by easily 30% over the next five years on the
back of cheap feedstocks resulting from the shale gas
boom. Canada and Mexico will also see ethylene and
polyethylene expansions.
• Polymer production expansions will accompany that
growth (mostly in PE, so far), and it is no secret that
the US will look to increase market share in Latin
America, a region net short plastic resins.
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5. The Region
• The region, which for discussion purposes
encompasses Mexico, Central and South America
and the Caribbean, has companies big enough to
hold their ground and compete — Brazil’s Braskem
(polyethylene, polypropylene and polyvinyl chloride),
Mexico’s Pemex Petroquimica (PE) and Mexichem
(PVC) come to mind — but even these will face
tremendous challenges.
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6. The “smaller” guys
• So what about the “smaller” guys? The region has a
number of small- to medium-sized polymer
producers scattered mainly through Mexico and
South America, with capacities that range from
50,000 to 500,000 mt/year
• They are an interesting bunch, to say the least. Some,
like polypropylene producers Indelpro in Mexico and
Petroken in Argentina (LyondellBasell) as well as PE
makers Dow Argentina and Petrodow in Chile (Dow
Chemical), enjoy at least some level of backing from
US majors.
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7. The Others
• Others, such as Ecopetrol Polietileno and Propilco in
Colombia, Propilven (PP) and Polinter (PE) in Venezuela and
Pemex Petroquimica are chemical subsidiaries of state-
controlled companies. A few others, including Petroquimica
Cuyo in Argentina and Petroquim in Chile, operate
independently.
• Many of these companies have serious decisions to make
regarding the long-term strategy of their businesses.
Representatives from some of these companies have
expressed at least some interest in potential partnerships with
US-based majors, if these don’t exist already.
• And at least one is considering redrawing its business model,
morphing from producer to producer/distributor, even if this
means becoming a seller of a product long viewed as
competition.
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8. PP Demand
• This would certainly apply to anyone making
polypropylene south of the US-Mexico border, but
mainly in South America. The reason is simple: If
North America, and mainly the US, begins to flood
the market with cheaper polyethylene, PP makers in
the region could see demand destruction, stemming
from uncompetitive pricing on their part, and/or
product substitution, as some PP demand could be
lost to certain grades of PE.
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9. And that’s key
• So why not dig in those heels and invest in expanding?
• The financial requirements for major expansions are out
of reach for many of these companies, whether they
have government backing or not. Even the bigger players
in places like Brazil, Argentina and even Venezuela, have
seen expansion projects stalled or, in a best-case
scenario, advance at a snail’s pace, for a variety of
reasons, including but not limited to lack of capital, will
and/or feedstock.
• And that’s key. In the near-term, at least, many of these
companies do not enjoy the same levels of feedstock
availability, much less the lower costs that US companies
are enjoying.
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10. Doing business “south of the border”
• But these smaller companies do boast a significant
business aspect beyond a customer base and stable
demand: Many of them have solid distribution networks.
• The distribution element of the business should be of
particular interest to any US-based company looking to
expand market share in Latin America, as many lack the
proper distribution infrastructure and/or channels
beyond Mexico. Another key aspect to doing business
“south of the border” is the personalized service and the
trust factor many of these smaller players have
developed and nurtured over their years doing business
at the domestic or regional level. A handshake still goes a
long way in Latin America, just as speaking the same
language does.
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11. Being “wooed” by Asia-based sellers
• Most US majors already have a solid grasp on Mexican
polymer markets, thanks in part to proximity and the North
American Free Trade Agreement.
• Not so in South America, and the fact that US PE and PP
producers are so focused on strategies that maximize profits
in the domestic market, all the while limiting exports to Latin
America, whether because of product availability issues
and/or uncompetitive pricing, may not be sitting well with
current and potential customers in the region.
• US majors must keep this in mind: Many of these customers
are beginning to be wooed by Asia-based sellers looking to
grow their presence in the region.
• And the smaller players in Latin America should remember
that, in many cases, success — in this case survival — comes
to do those who adapt.
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12. Thank You
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13. ©2013 Platts, McGraw Hill Financial. All rights
reserved.
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