The economic situation is gradually improving, the Latin American chemical industry may be improving

Source: China Chemical Industry News February 14, 2019

With the gradual improvement of the economic situation and the continuous growth of the middle class, the Latin American chemical industry, which has been in the doldrums in recent years, may see improvement this year.

The International Monetary Fund (IMF) recently released \"World Economic Outlook\" shows that the overall economic growth rate of Latin America in 2019 is expected to reach 2.2%, and the growth rate in 2018 is 1.2%; of which Brazil's growth rate is expected to be 2.4% this year, last year's 1.4%; Mexico’s growth rate is expected to be 2.5% this year and 2.2% last year; Argentina’s economic downturn is expected to slow down, from a 2.6% decline last year to 1.6%.

Brazil is trying to get out of the recession after peaking in 2015 and 2016. Jo?o Luiz Zu?eda, founding partner of the Brazilian chemical consulting group MaxiQuim, said the Brazilian stock market’s good performance was due to a series of expected free market policies that will encourage the influx of foreign investment. Bursonaro promised to pursue a classical free economic policy and privatize state-owned enterprises, and Petrobras, Brazil's national oil and gas company, has stated that it will divest non-core assets in its chemical, fertilizer and oil refining sectors.

Mexico’s new President Andres Manuel López Obrador hopes to reverse the long-term decline in the country’s oil and gas production while achieving self-sufficiency in the country’s gasoline fuel. Mexico announced plans to invest US$2.6 billion to modernize the country’s refineries and invest US$8.4 billion in a new refinery in Dos Bocas, Tabasco in the next three years. This move will help Mexico reduce refining Import of products and promote the production of downstream chemicals. The new project may reverse the shortage of raw materials that led to the low operating load rate of the Mexican petrochemical plant. All cracking units in Mexico mainly use ethane as the raw material, and most of the ethane raw materials are separated from the associated gas produced in crude oil production. Because the decline in oil production has led to a shortage of ethane, Mexico now needs to import ethane raw materials from the United States for petrochemical production.

Although Obrador has always supported the energy industry, his other policies may hinder the investment needed for Mexico to increase oil production and upgrade and refine oil refineries. The energy reforms carried out in the past were aimed at attracting foreign investment, but without external funding, it would be difficult for Mexico to reverse its decline in energy production. If there is no funds from external companies, the Mexican government will have to raise its own funds, which will inevitably increase the debt burden of the Mexican National Petroleum Corporation or abandon its energy plan.

After the sharp depreciation of the Argentine currency against the US dollar caused the financial crisis, it may fall into recession again. To help the Argentine government overcome the crisis, the IMF Executive Committee approved the provision of a credit line of USD 56.3 billion for Argentina, and standby agreement funds will be in place by 2021. In 2019, Argentina will face more challenges in controlling expenditures. Fitch expects the economy to contract by 2.7% in 2018 and 1.7% in 2019. This is similar to the IMF forecast.

Despite many challenges, the long-term potential of Latin America remains unchanged. The growing middle class in the region is still the engine of economic development and will once again drive the growth in demand for plastics and chemicals at a growth rate higher than global GDP. Bob Patel, CEO of LyondellBasell, said that there is still huge growth potential for plastics and petrochemicals in Latin America, among which the positive factors include urbanization. In addition, Latin America is also a high-growth region in the automotive industry, and it is expected that the demand for young cars will increase by 6.2% in 2019, which is faster than any other region. He also said that he is negotiating the acquisition of a majority stake in Brazilian petrochemical manufacturer Braskem to expand its business in Latin America and is confident of the successful acquisition of Braskem.