The ‘pink tide’ increases uncertainty in an interconnected market
Image courtesy of James Wheeler
The so called ‘pink tide’ in Latin America began with the rise of leftist leaders in Mexico and Argentina in 2018 and 2019, but in the last two years it has been most apparent in the Andean region, with the appointment of Pedro Castillo in Peru followed by Gabriel Boric in Chile, and most recently Gustavo Petro in Colombia. For the business community in these countries the new governments bring about uncertainty from an investment standpoint, but it is also important to note that these political changes can impact chemical players in the region even if they are based in a neighboring country. Domestic markets in nations such as Chile, Peru and Ecuador do not have the scale of Brazil or Mexico, and therefore companies often serve multiple countries.
For example, Chilean polypropylene producer Petroquim sells approximately one third of its 80,000 t/y production in Chile, with the rest mainly sold along the Andean coast in Ecuador, Peru and Colombia, as well as small amounts in Argentina and Brazil, according to general manager, Jorge Garcia. He affirmed his optimism that the cyclical nature of the industry will lead to recovery, and in the meantime companies should reconsider how things are done, from costs to people and training. “We have made adjustments to redefine and optimize the distribution of tasks to create a more sustainable business.”
Demonstrating how trade within the Andean region is connected, Garcia detailed how the availability of freights from Chile to Peru, Ecuador and Colombia has been deeply affected in the last two years. “We had clients, particularly in Peru, who were used to handling almost zero inventory. Suddenly, we had to handle delays of up to 40 days. We had to manage our own distributors and hire third-party distributors to support the production of our clients during this period,” he revealed, before adding that while freights remain expensive, fortunately the situation has improved.
Peruvian distributor Químicos Goicochea had been considering expanding internationally, but is taking a cautious approach due to the political and economic backdrop the region is facing, according to commercial manager, Jaime Villanueva. “Who would have thought that Chile, a country with a long-running sustained economic policy, would elect a president like Boric; or that a previously fast-growing country like Colombia would elect Petro,” he said, but commented that politics, like natural resources markets, are cyclical, and there will always be opportunities for companies with experience and expertise.
Werner Watznauer, president of the Chilean Chemical Industry Association (ASIQUIM), noted that Chile’s chemical sector has seen strong growth in the industrial gases, adhesives, pigments, mining, pulp and paper and construction segments in the last two years, but inflation and supply chain disruptions have caused many materials and logistics to become extremely expensive. “For example, two and a half years ago, shipping a 40-foot container from China to Chile was approximately US$2,000, whereas today it can cost from US$12,000 to US$15,000 if you want it express,” he said, adding that raw material price increases and volatility in the selling price of the final products had generated overpriced inventory. Furthermore, for a country used to around 2% or 3% inflation rates, the 10% inflation reached in 2022 has been a shock.
Although volatility in the last two years has created challenges, it has also provided opportunities in certain areas, particularly for local producers who could reap the benefits of Asian imports becoming more expensive. Christophe Jacob, CEO of Chilean company Austral Chemicals, noted that the bigger companies that have high volume requirements and mainly source from Asia were far more affected by increased logistics and raw materials prices. He added: “Our purchasing focus changed slightly as we had to start importing some raw materials from Brazil and China. However, this has been beneficial for us as we are now purchasing directly from the supplier and not through a distributor, resulting in savings of between 30% to 35 % on many of our raw materials.”
“We understand that politics, like natural resources markets, are cyclical, and there will always be opportunities for companies with experience and expertise. We want to continue growing organically, selling more in different markets, and perhaps create a subsidiary in another Latam country in the future.”
Jaime Villanueva, Commercial Manager, Químicos Goicochea
Colombia enters a new era
On August 7th, 2022, Gustavo Petro officially took office, ushering in a new era for Colombia as the country’s first left-wing president. While it is too early to predict exactly how the new government will impact the country’s petrochemical and chemical sector, discussions surrounding tax reform have suggested 25 trillion Colombian Pesos (approximately US$6 billion dollars) will be required, which will impact many businesses, depending on how the reform is rolled out.
“Chemical products are essential for everyday life, and I am optimistic that these markets will remain strong. The climate for investment is more concerning, as companies are holding off on capital expenditure to expand capacity or product portfolios before first seeing what happens,” remarked Daniel Mitchell, president of Acoplásticos.
Detailing the performance of Colombia’s chemical sector, Mitchell revealed that 2021 and 2022 had been positive, with growth rates above 15% for plastics and for other chemicals products in the first semester of 2022. He also highlighted the country’s potential for increasing its chemical imports, which grew substantially in 2021.
Felipe Trujillo, manager – petrochemicals and products at Ecopetrol, revealed that the past 12 months have been the most successful in the history of the company’s petrochemicals division, growing 49% in 2021 compared to 2019 results, and an estimated growth of a further 14% in 2022.
Regarding the new government, Trujilo commented that if campaign promises of an emphasis on sustainability materialize, Ecopetrol may be favored because it has several initiatives aiming for circular economy and the energy transition. “We are working on a very ambitious project which has brought great results, developing and testing the incorporation of postconsumption low density polyethylene plastic in asphalt with one of our business partners,” he said, adding that Ecopetrol hopes that the incorporation of plastic in asphalt in four to five years is equivalent to the company’s production of plastic, which would warrant a cycle closure of 100%.