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Growing Latin American demand for Polyethylene far outstrips its production and planned additions, but new US capacity can help

10 June 2016 Raul Arias Alvarez

Region will import approximately 50 percent of its polyethylene requirements by 2025

Demand for polyethylene (PE), the key raw material for plastics production, is growing in Latin America thanks to an expanding middle class, but the region's current and planned PE capacity will continue to fall short of demand, driving the region to import approximately 50 percent of its PE needs by 2025.

Demand for PE (in all forms) in Latin America currently exceeds 7 million metric tons (MMT), IHS Chemical has found. However, the region currently has a net deficit of more than 3 MMT of polyethylene, and by 2025, the region's PE net deficit will approach 5 MMT.

Today, as a region, Latin America does not currently produce enough polyethylene to meet its needs, and is facing a supply deficit that is only going to increase during the next decade. This lack of future PE capacity expansion in Latin America has been caused by the lack of competitiveness of regional feedstock resources compared to US shale-based production, combined with the region's reduced access to financing, which in turn, resulted from the global economic crisis. As a result, the PE imbalance will be sustained and will increase as the economy starts to improve, further driving plastics demand in the region. Inevitably, PE imports will have to increase to meet demand.

Home to approximately 634 million people, including a large, youthful population, Latin America is expected to see its GDP decline 0.7 percent in 2016, IHS said, but should recover thereafter, driving greater consumer demand for a host of durable goods that are made from plastics.

In 2017, the region will benefit from a less pronounced recession in Brazil as policy makers and politicians there partially agree on measures needed to fix the economy. Commodity prices and external demand will no longer be a drag on growth for most economies in the region. A soft recovery will take place, driven by domestic consumption and investment. This growth in consumption demand will directly impact demand for plastics made from PE. To meet its growing needs for chemicals and plastics, the region will not have to look far, since its US neighbor will be adding more than 100 million metric tons (MMT) of new petrochemical capacity by 2025, including approximately 8 MMT of PE capacity during the next five years. Globally, PE expansions will reach nearly 24 MMT during the 2015 to 2020 timeframe.

Polyethylene Demand Expectations

Brazil is the biggest market for PE in the region, representing 36 percent of demand, followed by Mexico at 26 percent. Argentina follows with 10 percent of regional plastics demand, then Colombia and Chile both at 5 percent.

High-density polyethylene (HDPE) is the most-consumed polyethylene type in the region, representing 43 percent of total PE demand. Known for its strength and durability, HDPE is used in numerous, diverse, applications including plastic bags and bottles (milk, laundry detergent), piping and construction materials, as well vehicle gas tanks. Linear LDPE or (LLDPE) is known for its flexibility and stretchiness, which makes it ideal for use in plastic wrap and stretch wrap, as well as toys and other applications. LLDPE is currently driving 31 percent of the PE market demand in Latin America. Low-density polyethylene (LDPE) represents the smallest segment at 26 percent of PE consumed. LDPE is used primarily for plastic bags, packaging and other applications.

Film and sheet applications, which is key to the packaging sector, is the most important plastics use segment in the region, representing more than 60 percent of plastics demand. Even though film and sheet growth has been relatively modest, its magnitude has been a key factor in generating PE growth in the region, in part because it is essential to the region's agricultural and livestock production and exports. Brazil, in particular, this agricultural sector has played a significant part in the nation's GDP in recent years and was among the highest performing industries in Brazil in 2015.

Blow molding is a manufacturing process that creates hollow plastic components. This segment represents 16 percent of PE demand in Latin America, while injection molding accounts for 11 percent of polyethylene demand in the region.

In terms of capacity, PE production exists in only five countries in the region: Argentina, Brazil, Colombia, Mexico and Venezuela. In April 2016, Braskem/IDESA initiated production of ethylene and PE at their Ethylene XXI project in Mexico, however, IHS does not anticipate other large grassroots projects for ethylene or PE to start in the region through 2020. Down the road, "there is opportunity for the region to invest in domestic PE production, particularly in countries like Argentina, which has a good industrial base, and the luxury of shale resources that may bring new light to its energy future, revitalizing its petrochemical industry.

IHS Chemical Special Report: Latin American Polyethylene Market: Supply Shortfalls, the Growing Opportunity goes beyond the contents of the consultancy's traditional annual IHS ChemicalPolyethylene World Analysis, to include insight gained in multiple conversations with plastics converters in the region, as well as to provide an additional view of the market, by end-use segment, such as packaging and agriculture, etc. The report also looks into specific polyethylene type preferences in the region (co-monomer and catalysts used in linear low density polyethylene resins), pinpoints the main centers for consumption within the region, and provides listings of the top consumers.

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Industry-specific insight alone is not sufficient to make decisions of great scale. Connecting the dots to reveal interdependencies between both adjacent and seemingly unrelated sectors is required. It's at these connection points where the greatest risks and opportunities await.

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