How would you describe the key factors shaping Latin America’s petrochemical sector so far in 2024?

According to economic projections by our economists here at S&P Global Commodity Insights, some of the major economies across the region have been forecasted to lose growth momentum in 2024. This is expected to be partially offset by an environment of lower inflation and lower interest rates, supporting private consumption. In 2024, real GDP growth in Mexico is expected to decline from 3.2% to 1.4%, while Brazil will now stay relatively flat from 2.9% in 2023 to 2.8% in 2024. In 2023, Argentina fell into a deep and persistent recession lasting into 2024 with a negative GDP growth of -4.2% before rebounding in 2025 to 3.2%. Thus, slow economic growth has been a key factor shaping Latin America’s petrochemical sector in 2024. The region’s investments in petrochemicals have been minimal in the recent past and no new sizeable investments are seen in the foreseeable future. Consequently, Latin America imports of petrochemicals continue to rise, eroding the region’s self-sufficiency. The slow regional economic growth, increased low-priced imports from Asia, and high domestic petrochemical feedstock costs have led to very low utilization rates in the petrochemical industry across the region. What vulnerabilities do Latin America’s chemical and petrochemical industries face compared to other regions?

One vulnerability has been the lack of available low-cost energy and feedstocks. This has led to very limited new investment in petrochemicals for more than a decade. The persistent economic situation in Argentina and the political instability in Venezuela has kept these two countries from reaching their true potential given the vast natural resources available to them. This leads to another vulnerability of continued increasing dependence on imports to meet the regional needs for growth.

I think human capital is an area of resilience for Latin America chemical producers, and they are making full use of it to address these main areas of vulnerability. As an example, due to the high cost of energy and feedstocks, Latin America chemical producers have made great strides in efficiency gains to reduce production costs. There is also noticeable advancement in developing renewable energy and feedstocks (bio-feedstocks) for use in the production of chemicals and plastics. In addition, there has been great interest in reducing waste and to that end, many companies across the region are making great strides in plastic circularity. How well is Latin America’s chemical industry prepared for the transition to a net-zero future?

The fact that all countries in the region have ratified the Paris Agreement is a very good sign of their commitment to participate. However, the region’s chemical industry’s heavy dependence on fossil-based feedstocks makes measurable progress a tougher proposition. To date, only a handful of Latin America-based companies have made net zero commitments and they will face a difficult road toward achievement, given the expensive costs of net-zero solutions.

However, Latin America’s chemical industry is by no means standing still. Most petrochemicals players in the region have created sustainability departments dedicated to studying the energy transition challenge and identifying solutions. A good number are investing in decarbonization solutions, including bio-ethanol-to-plastics initiatives. Various companies around the region have fully committed to plastic circularity, most notably in Brazil, Mexico and Colombia. When can we expect signs of improvement in the current downcycle?

Nearly all base petrochemical value chains are in a downcycle. In the case of olefins and polyolefins, one of Latin America’s largest volume product chains, the global market entered the downcycle in the second half of 2022. One of the best indicators to watch is the industry’s average utilization rate. When these begin to reach the low 80’s, history has shown it’s a good sign that the industry will start its next upcycle. Signposts that would signal a recovery would be an increase in announcements in capacity rationalization by producers. Producers announcing project cancellations or postponements would be another signpost. So far, announced rationalizations have been small and slow to come by. If things continue to proceed as they have in the last two years, S&P Global Commodity Insights’ analysis of supply and demand fundamentals indicates that a recovery could be delayed until the back end of this decade, beyond 2028/29.