Latin American polymers face logistics issues, lower prices in H1 2023

Latin American polymer markets will remain key to US suppliers in the first half of 2023 amid strong competition from lower prices and plentiful supplies from Asia.

Latin America's polyethylene prices typically inch up after US suppliers destock in the previous quarter. However, prices were not seen rising in Q1 2023 amid a combination of new PE capacity coming online in the US as well as continued competitive pressure from Asian exports and lower freight costs.

"Low prices and margins for the next two years are expected," Robert Stier, senior lead of global petrochemical analytics for S&P Global Commodity Insights, said of Latin American PE and polypropylene.

S&P Global sees PE prices starting Q1 2023 below $1,000/mt with LDPE slightly higher. For PP, S&P Global sees prices slightly above $1,100/mt in Q1.

"Global supplies shift from tight to long as new capacity catches up with demand," said Jesse Tijerina, Chemical Insights, Americas Polyolefins Lead for S&P Global Commodity Insights.

He said polyolefin demand growth was slowing as inflation, rising interest rates, Russia/Ukraine war-induced high energy prices, and lingering pandemic policies soften global consumer confidence. More US and Asia capacity to come online in 2023 also was seen pressuring margins.

Regional traders expect prices in early 2023 to be in line with the end of 2022, while less demand expected could pressure spreads.

"Political issues can and should affect the market in 2023, especially if the new Brazilian government resumes import taxes that were discontinued," a Brazilian trader said.

In terms of spreads, the market is expected tighter next year. "[The] market is softening in 2023, I believe it'd be a hard year to pass by basically because margins to producers will be tight if not losing money at one point. I expect oil prices to fall so producers could make some margins, but I don't see it in the near future," a regional polypropylene producer said.

US logistics snags seen lingering

Logistics snags that have stymied US polymer exports since Q4 2021 were seen lingering through early to mid-2023, adding pressure to maintain market share in Latin America where buyers are increasingly eyeing Asian material.

"Freight rates easing up in the second half of 2022 has increased import competition and improved supply reliability and lower prices," Tijerina said.

US shipments to Brazil and the West Coast of South America face delays of four to six weeks in Q1, amid short supply of chassis and truck drivers at ports as well as holdups at transshipment sites in Panama and Colombia.

Asian material typically takes up to three to four months to arrive. However, that timeline shrank as freight rates and demand softened in 2022, making Asian material much more competitive given delays in moving US material, particularly to WCSA markets.

As a result, price and delivery reliability increasingly determine the winning supplier, and that competition is seen continuing in 2023.

Latin demand seen retreating in 2023

Latin American polymer demand was seen softer in 2023 as the downturn that emerged in the second half of 2022 lingers, driven by higher inflation, exchange rates and slower GDP growth.

The International Monetary Fund sees Latin American GDP growth at 1.7% in 2023, slowing from 3.5% in 2022, as financing becomes more scarce and costly with major central banks raising interest rates to combat inflation.

Specifically, the IMF sees 2023 expectations in Brazil and Chile at 1%, the lowest in the region, and Peru with the highest at 2.6%. Uncertainty ahead of Brazil's new President Luiz Inácio Lula da Silva starting on Jan. 1 has investors on hold, awaiting direction.

PE packaging demand for health, hygiene and other discretionary goods was seen slowing, while demand for PP and polyvinyl chloride in more durable automotive and home construction markets was also seen softer amid rising interest rates and inflation.

"In the near-term, the region is vulnerable to recession -- rapid inflation, high interest rates, and weakening exports," Tijerina said.

Exchange rate volatility also was expected to continue to influence local prices. Brazil's new government policies were still unclear, while other countries in the region have seen their currencies devalue since the start of the pandemic amid US dollar strength.

Argentina has had the most struggles, as importers need permits and face US dollar restrictions, pushing local prices to the highest in Latin America.

"For Latin America, these factors result in a deceleration in activity as higher borrowing costs weight on domestic credit, private consumption, and investment," the IMF said.