CEO Panel Theme 1: Economic Performance and the Chemical Industry

Moderator: Marcos de Marchi, CEO, Elekeiroz / Chairman of the Board, ABIQUIM

What do you expect from your country's economy, and what impact will this scenario have on the chemical industry in terms of local consumption, production, challenges, opportunities and investments?

Daniel González, CEO, YPF

For a long time, Argentina has been going through a deep recession that has been accentuated by the political volatility generated by the elections and a change of party in the administration. We believe that in 2020, we will probably not see any economic growth yet. Although the economy will tend to stabilize and inflation will be lower, the inertia from the crisis will not allow inflation to be brought at rates comparable to those of other countries. With an inflation rate of 50% in 2019, there is no doubt that economic growth is very difficult to achieve, because there is no access to financing in the market.

This situation has two types of effects. For petrochemical products that are sold locally, demand has contracted a lot, and we do not expect explosive growth in the short term. On the other hand, as a consequence of the devaluation of 2019, which builds on the one that occurred in 2018, the costs in dollars are very competitive for all those products destined for export.

Pedro Manrique, Commercial and Marketing Vice President, Ecopetrol

Colombia is one of the few countries that is growing at a good rate of 3.2% in 2019 and has positive expectations for 2020. This growth is occurring in a very favorable political context under the new government of Iván Duque, who has brought fresh air to the entire business environment. We also have one of the lowest inflation rates in Latin America, with 3.9% in 2019 and an estimated 3.1% in 2020.

Oil production is essential for the economy, since it represents more than 40% of Colombia's exports. We have increased year-on-year production consistently in recent years, and 2019 will close with a production of 870,000 barrels per day of oil equivalent, including about 100,000 barrels of natural gas. Of the 870,000 barrels, Ecopetrol produces about 730,000 barrels per day, representing a growth of 4% compared to 2018. 50% of hydrocarbon production is exported.

Ecopetrol is a company that has been transforming since 2015. With the first wave of transformation, we achieved savings and efficiencies of between US$3 billion and US$3.5 billion, which allowed us to increase margins. Between January and September 2019, we reported very favorable results, and that has positioned us as the number one company in Latin America in terms of financial results. We managed to keep EBITDA margins at 48%. With the second wave of transformation that began in 2019, we expect to have savings and efficiencies of about US$2.5 billion, although the barrel of Brent crude, the benchmark with which we export, fell more than US$10 per barrel year-on-year.

With respect to the petrochemical industry, the growth of the economy is closely tied to industrial demand. Although petrochemicals only amount to 3% of our portfolio, these are very important products with very high margins. Ecopetrol alone, without our affiliate Esenttia, has a business worth about US$500 million. This business grew by 30% between 2017 and 2018, and in 2019, despite the challenge of falling petrochemical prices, we managed to keep the same levels of revenue by increasing volumes, which we also plan to do in 2020.

Fernando Musa, CEO, Braskem

We started 2019 with great optimism in Brazil after the 2018 elections, but, unfortunately, growth levels have been lower than expected. Again, we have an optimistic vision for 2020 when stronger recovery is expected. For the chemical and petrochemical industry, the frustration of low growth contributed to a very big challenge that already exists in Brazil – very low utilization rates in the industry, which are the case because of either a lack of internal competitiveness due to logistic issues, energy costs and feedstock costs, or the importation of products from very competitive countries.

The likely scenario is that demand continues to grow at a slightly higher rate than GDP, but the industry is not experiencing the growth it could have. With the improvement of the economy, an increase in the utilization rate must be achieved, which will also bring greater competitiveness.

Diego Ordóñez, President, DOW Argentina and Latin America South Region

There are positive signs that make us see the glass half full when we look at South America. We see Brazil's economy returning to growth in 2020, and that is very important for the industry. In Argentina, aside from uncertainties that were generated in 2018 and 2019, we are also positive. The people have already chosen the new government, which removes uncertainty. What comes next is not easy for Argentina, but we are positive.

The half-empty vision is the worrying tendency to both physical and verbal violence that we have seen in fellow countries in Latin America; physical violence in Chile, Bolivia and Ecuador and verbal violence in the exchanges between the leaders that must work to solve the problems. This is something that makes conducting business in the short, medium and long term more difficult. The challenges that the region has are very important, including income distribution and taking more people out of poverty, and those challenges require leaders to sit down and talk. Talking to someone who thinks differently is essential. In the petrochemical industry, we saw it almost a year ago when we sat down with partners and competitors to look for solutions to the big problem of plastic pollution. From that diversity, we were able to find solutions, both in terms of technology and problem solving strategies.