|The rebound in the Latin American petrochemical industry is more than a year old. And with an uncharacteristically rosy economic outlook coupled with high profitability in the chemical sector, regional producers are confident enough about the good times that they are moving forward with new investments.
Some of the region's largest uncertainties are becoming mere memories. The bid to recall Venezuelan President Hugo Chavez in August failed, ending two years of political instability in that country.
"In Latin America, economic activity is rebounding strongly this year, supported by a pickup in domestic demand--underpinned by easier monetary conditions in most countries and improved confidence--and the robust global expansion," a recent report by the International Monetary Fund (IMF) says.
Although economic growth throughout the region is expected to ease compared with 2004, Latin America is still set to post strong gains in 2005. Argentina is expected to show a third consecutive year of economic improvement, with 4% growth predicted by IMF, versus 7% growth in 2004. Brazil is projected to post a 3.5% gain compared to 4% in 2004.
Chile is expected to grow by 4.7% in 2005 versus 4.9% in 2004. Venezuela's recovery is forecast to taper off from the stratospheric 12.1% rate seen in 2004 to 3.5% in 2005. Finally, Mexico is forecast to post 3.2% growth in GDP in 2005 versus 4% for 2004.
The chemical sector in Latin America has gotten a huge bounce from the region's economic strength. Brazil's largest private-sector chemical firm, Braskem, posted big gains in the first nine months of 2004. Its net revenues increased by 24% to $2.8 billion during the first nine months of 2004 versus the comparable period in 2003. Braskem's earnings before taxes increased 44% to $644 million during the nine-month period.
In Mexico, state oil company Pemex saw volumes of petrochemicals for external sale rise by 12.7% to 3.2 million tons in 2004 through November, while revenues increased by 54%, hitting $1.5 billion.
Another positive development for the Latin American petrochemical industry over the past year has been the progress on the large petrochemical projects in the region.
In October, partners were revealed for the Phoenix Project, a new ethylene cracker complex championed by Pemex. The company's partners will include Canada's Nova Chemicals; Mexico's Grupo Idesa; and Indelpro, the polypropylene joint venture between Basell and Grupo Alfa.
Pemex expects the natural-gasoline-based complex to cost $1.9 billion and go onstream around 2009. It is set to have 1.2 million tons of ethylene and 600,000 metric tons of propylene capacity plus two polyethylene plants and other derivatives units.
The partners say they will hammer out the details of the project--such as feedstock contracts, derivatives units, polyethylene technologies, and location--by the spring of this year.
In 2006, Pemex will begin promoting the second phase of the Phoenix Project--an $800 million aromatics train. Arturo Garcia, Pemex's director of the project, says it would have about 800,000 metric tons of aromatics capacity and possibly another 250,000 metric tons of ethylene and 400,000 metric tons of propylene capacity.
Furthermore, Garcia says Pemex has already set some definite parameters. He says the cracker "will be more competitive for ethylene than Alberta," an indication, perhaps, of how generous Pemex is willing to be on the feedstock contract. He also says Pemex will limit its stake to 49%.
Also clear to most observers are the benefits that the Phoenix Project will have on the Mexican chemical industry, which has long suffered from failed privatization bids and want of investment from both the private and public sectors. Garcia told attendees at a Latin American chemical conference late last year that the Mexican industry has seen no major investments since the late 1980s. "Pemex did not invest, nor did it allow the private sector to invest," he said. In 2003, 58% of the $18.3 billion Mexican petrochemical industry was supplied through imports, Garcia said.
Garcia says the Phoenix Project will mark a turnaround. "We are starting so that private industry can continue to make investments from then on," he said.
In Venezuela, ExxonMobil Chemical and Petróleos de Venezuela (PDVSA) agreed in August to further develop their long-studied petrochemical complex in Jose. The project, expected to cost more than $2.5 billion, will include a 1 million-metric-ton ethane-based ethylene cracker plus derivatives units.
Rina Quijada, a Latin American petrochemical consultant for Coral Gables, Fla.-based Intellichem, says, however, that before the effects of the large projects are felt, the region will see a lot of smaller projects--ones that are associated with refineries and focused on products other than ethylene, particularly propylene and aromatics.
The aromatics phase of the Phoenix Project fits this profile, as does a 200,000-metric-ton ethylene cracker expansion and new polyethylene unit that Petroquímica União is planning in São Paulo, Brazil. In addition, in Mossi & Ghisolfi's recent announcement of a new polyethylene terephthalate plant near Recife, Brazil, the firm revealed it was in talks with Petrobras about producing polyester feedstocks.
Similarly, as part of a program to help Mexico catch up in petrochemicals, Pemex has some $250 million in expansions planned for its Cangrejera complex, including styrene, low-density polyethylene, p-xylene, and ethylene. It also has $330 million in investments planned for Morelos in ethylene, linear low-density polyethylene, ethylene oxide, and high-density polyethylene.
Regional chemical producers are also interested in strengthening their hands in anticipation of the upturn in the petrochemical cycle. José Carlos Grubisich, chief executive officer of Braskem, recently told investors that his company needs to invest in small improvement projects throughout its Brazilian manufacturing base to keep up with demand.
"Braskem has been taking actions to expand its production capacity by means of competitive investments to debottleneck its plants and accelerating the timetable of projects to build new industrial facilities in light of the current positive scenario," he said.
Braskem has small expansions in polyethylene, polypropylene, and polyvinyl chloride. Additionally, Braskem is studying the feasibility of a new 300,000-metric-ton polypropylene plant in Paulínia that may be onstream by 2007.
Braskem also has its eyes on longer term projects such as a 600,000-metric-ton ethylene and derivatives joint venture with Petrobras on Brazil's border with Bolivia using Bolivian-based ethane gas. Petrobras--which is also a partner in the almost completed 500,000-metric-ton Rio Polímeros ethylene/polyethylene joint venture in Duque de Caxias, Brazil--is also said to be considering a petrochemical complex as part of a refinery expansion.
The long-term planning isn't limited to Brazil, Venezuela, and Mexico. Thanks to the massive Camisea natural gas exploration project that came onstream in 2004, serious consideration is being given to a cracker complex in Peru. The gas, which comes from Peru's jungles and boasts a high ethane content, might be used to feed petrochemical developments that the Peruvian government is eyeing in Pisco or Pampa Melchorita on Peru's coast, according to a presentation given by Ramon Duggan of regional energy company Pluspetrol in Buenos Aires last November.
If this project is like others in the region, however, it will be years before we know whether Peru will be put on the petrochemical map.