Latin America: Region braces for a coming storm of imports

All is quiet on the economic front in Latin America, where growth was moderate in 2013 and should remain so this year. Local executives are preparing instead for 2017, when U.S. chemical plants built to run on shale gas are expected to start up. Latin America, they know, is a logical market for the output of these plants.

Latin American economies have cooled from the frenzied rate of growth many enjoyed a few years ago. Economists at the International Monetary Fund expect Brazil, the region’s largest economy, to repeat last year’s 2.5% growth performance in 2014. The depreciation of Brazil’s currency will boost competitiveness and lift exports, IMF says. “But higher inflation has lowered real incomes and may weigh on consumption,” the fund warns.

According to the Brazilian chemical industry’s trade group, Abiquim, chemical performance was in line with the broader economy last year. Brazilian chemical shipments increased by 1.5% in 2013, hitting $162 billion. From 1996 through 2013, in contrast, the industry grew at an 8.1% annual clip.

In Mexico, the economy was even more sluggish, with meager 1.2% growth in 2013. Chemical sales volumes at the state oil company Pemex declined by 6.6% during the first 11 months of 2013. However, IMF says Mexico is set to ride a wave of increased government spending and strong U.S. growth to see 3.0% economic expansion in 2014.

Mexico is also on track to be the home of the first new ethylene cracker to be built in the Americas in more than a decade. In November, Braskem reported that its $4.5 billion project in Coatzacoalcos, Mexico, is 48% complete. It is scheduled to start up in 2015, well ahead of the U.S. projects based on shale gas.

But most other major Latin American projects are languishing, according to Rina Quijada, senior director for the region at IHS Chemical. “Most of the petrochemical projects that we had in the region have been put on the back burner at the moment due to all this new feedstock that will come on soon in North America,” she says.

When that happens, Latin America will become an even more critical market for U.S. chemical producers than it already is. A mere 40% of the planned U.S. polyethylene capacity that can’t be absorbed at home would completely saturate the Latin American market, Quijada says. Small, older plants in the region, she notes, are in jeopardy of closing.