State oil companies have always been heavy hitters in the Latin American chemical industry. In 2004, they may prove to be even more important as they make decisions that could reshape petrochemical industries in several countries.
These decisions will be set against the backdrop of a recovery in every major Latin American economy. Strong growth has been elusive for Latin America, which has seen an economic meltdown in Argentina; a coup attempt and major oil strike in Venezuela; a U.S. economic downturn that hurt Mexico; and an election in Brazil that made the financial community nervous until the victor, Luiz Inácio Lula da Silva, proved himself to be more teddy bear than revolutionary.
"A tentative recovery appears to be emerging in much of Latin America, although growth is highly differentiated across the region and political uncertainty continues to weigh heavily in some cases," says a recent report by the International Monetary Fund. Brazil and Mexico are expected to post solid 3% and 3.5% gross domestic product (GDP) growth, respectively, this year after 1.5% gains last year, according to IMF.
Chile, the regional model of stability, is expected to rack up 4.5% growth this year after a strong 3.3% showing in 2003. According to IMF, Argentina's strong increase in exports and monetary stability helped spur a 5.5% rise in GDP last year after a long recession. Argentina's GDP is expected to rise by 4% this year. Even Venezuela is projected to post 7.7% growth in 2004, after a decline of 26% over the past two years.
The economic strength in Brazil is starting to work its way down to its petrochemical industry. Braskem, Brazil's largest private chemical company, posted a 36% increase in revenues, to $2.3 billion, during the first nine months of 2003 versus the year-ago period.
Earnings before taxes increased 43% during this time, hitting $315 million. With Brazil's real stabilizing against the U.S. dollar last year, Braskem didn't suffer a heavy increase on the value of its debt, as it did in 2002. Net income, therefore, increased to $141 million for the first nine months of 2003, versus a loss of $616 million in the same three quarters in 2002.
Because its debt of $2.3 billion is still high, Braskem isn't planning major capacity expansions or acquisitions. In fact, at the Brazil Day 2003 meeting in New York City in November, Braskem's chief executive officer, José Carlos Grubisich, said plans to build a new ethylene plant--the often-mulled cracker on the Brazilian side of the border with Bolivia using Bolivian gas--are a low priority for the company. "We will not need grassroots or greenfield capacity before 2008 to 2009," he said.
Instead, Braskem will focus on more modest improvement projects, such as a new polypropylene plant near São Paulo. Braskem is currently negotiating with state oil company Petrobras for supply of propylene for the project, which might be built by 2007.
However, in 2004 more chemical makers will have their eyes on Petrobras than Braskem. Early last year, the oil company purchased Argentine energy company Pecom Energia, a deal that added a stake in Argentine polyolefins maker Petroquímica Cuyo and Brazilian polystyrene maker Innova to Petrobras' existing chemical assets, such as minority stakes in Braskem and the two other ethylene complexes in Brazil.
Speculation abounds over Petrobras' next move; last year, rumors were floating that it was in talks to buy Ipiranga Petroquímica, which has been up for sale and would give Petrobras a sizable polyolefins base in Brazil and the largest stake in the Copesul cracker in Rio Grande do Sul.
Petrobras has promised to clear the air this spring when it announces a strategic plan in petrochemicals (C&EN, Nov. 24, 2003, page 18). "We know what we don't want," said Petrobras Chief Financial Officer José Sérgio Gabrielli de Azevedo at Brazil Day 2003, noting that the firm has no desire to become a state monopoly in petrochemicals or otherwise hurt competition in the sector.
Petrobras, however, does want to optimize its petrochemical portfolio. And Azevedo told C&EN that if it turns out there is enough ethane in the natural gas in the newly discovered offshore Santos Basin, he would like to see Petrobras take the lead in an ethylene project based on it.
BUT BRAZIL probably won't need this capacity soon. Rio Polímeros is due to complete an ethylene and polyethylene complex near Rio de Janeiro later this year. Moreover, Petroquímica União is negotiating a contract for feedstock from Petrobras for a 40% expansion of its cracker near São Paulo.
In Mexico, it is up to state oil company Pemex to turn the country's petrochemical sector around. To help ameliorate Mexico's $6 billion trade deficit in chemicals, the country has proposed the Phoenix Project, which consists of an ethane-based ethylene-polyolefin complex in the Coatzacoalcos area and a naphtha cracker for olefins, aromatics, and derivatives in Altamira.
Some 20 companies are supposedly discussing the project with Pemex, and this year Pemex is to narrow this list to serious takers. Jorge O. Bühler-Vidal, director of North Brunswick, N.J.-based Polyolefins Consulting, says many of these suitors are probably just sniffing out the competition. "If you look like a real partner, Pemex will probably talk to you," he says. "But some of those 20 may just be curious."
Bühler-Vidal says a vibrant market downstream is nearly guaranteed for the project. He notes, for example, that Mexico imported some 80% of the 1.8 million metric tons of polyethylene it consumed in 2002. He says the 300,000-metric-ton-per-year polyethylene plant that Pemex is building in Coatzacoalcos will merely accommodate the new growth expected in Mexico by the time it opens in late 2005.
Venezuela is expected to return to normal after a strike by managers at state oil giant PDVSA (Petróleos de Venezuela, S.A.) last year crippled oil and petrochemical production in that country. Ethylene production decreased by nearly a third to 200,000 metric tons. Rina Quijada, chief executive officer of Coral Gables, Fla.-based Intellichem, says demand for plastics actually increased in 2003, despite the turmoil in the country.
Stability in Venezuela, Quijada says, will help PDVSA finally ink an agreement with ExxonMobil for the on-again, off-again $2.4 billion project to build a 1 million-metric-ton ethane cracker in Jose, Venezuela, that would feed new polyethylene and ethylene glycol plants.
Quijada believes that a formal agreement between ExxonMobil and PDVSA could be signed later this year--provided there isn't another controversy that would put yet another face on management at PDVSA's Pequiven petrochemical division.
In Argentina, cheap feedstock and energy costs helped spur a partial recovery in chemicals, Quijada says, citing government figures of 16.4% basic chemicals demand growth in the first 10 months of 2003.
"In 2002 and 2003, Argentina had the cheapest energy in the Americas," Quijada says. She explains that gas rates for energy and electrical generation weren't changed even though the peso was allowed to float freely against the dollar in early 2002. Gas worth $1.80 per million Btu when the peso was pegged to the dollar dropped to 60 cents later. "It was very cheap to produce anything in Argentina; therefore, their product became very attractive to the international market," she says. But she worries that the fixed price for natural gas may cause shortages, prompting the Argentine government to inch up prices.
However, with prospects of an economic recovery and only a few hazards on the road ahead, Quijada is optimistic about the entire chemical industry in the region. "The overall picture for South America for 2004 will be much better than it was in 2003," she says.
Figures improved around Latin America in 2003
|THOUSANDS OF METRIC TONS
|a C&EN estimates. b Figures for styrene do not include February.
na = not available.
SOURCES: Country chemical trade groups