Winners and Losers
Covid-19 has had a mixed effect on chemical players across the region
Generally speaking, 2019 was not a good year for chemicals companies across Latin America. Low petrochemical prices, coupled with sluggish or flat economic growth, resulted in a challenging year for players across the value chain. So, when the pandemic hit and lockdowns were enforced in March, one could have thought 2020 would be a disaster year for the industry. While Covid-19 is an immense challenge for everyone, the truth is that no such simplistic conclusion can be drawn, as demand for certain products has actually increased dramatically.
First of all, the industry was able to prove that it is an essential industry that has to keep running. “The chemical industry feeds 40 other industries, and companies serving the pharmaceuticals, packaging or personal hygiene industries have seen double-digit growth during the pandemic,” highlighted Miguel Benedetto, director general of Mexico’s National Association of the Chemical Industry (ANIQ). He added that the industry operated at 60% capacity during the worst moments of the pandemic, while the pre-pandemic average was 70%.
In Argentina, the essential nature of the chemical industry was also recognized. According to Jorge de Zavaleta, executive director of Argentina’s Chamber of the Chemical and Petrochemical Industry (CIQyP): “We managed to convince the government that any continuous process plants, essential or not, should not stop. So polyethylene plants, urea plants and any other facilities that do not work on a batch basis could continue working. Also, the agriculture sector was declared essential from the beginning, and the chemicals industry is strongly linked to it with fertilizers, agrochemicals, plastics and agriculture equipment manufacturing.”
Ciro Marino, CEO of Brazil’s Chemical Industry Association (ABIQUIM), summarized the current state of affairs as follows: “The chemical industry is very diversified, but you can split it along two main lines: the winner sectors of the economy, including those directly related to the pandemic (hygiene products, polypropylene for masks, pharmaceuticals etc.), as well as agrochemicals and fertilizers, all of which have been running at full capacity. Then, you have the losers: automotive, aviation, tourism, textiles, and manufacturing.”
The mining industry, which is also an important consumer of chemical products, saw some mine operations shut down for a few weeks in large mining countries Chile, Peru and Mexico, however early recovery in China boosted the copper price, while overall financial uncertainty elevated the gold price to record levels above US$2,000 per ounce. This generated solid demand for sodium cyanide and other chemicals used in mining extraction processes.
Adapting to New Market Conditions
Demand contraction was severe in some industry segments, but it was not the only factor to consider when redefining business strategies to adapt to the market conditions of the pandemic. Covid-19 had quite a few ‘side effects’, from local currency devaluations across Latin America, product scarcity, and pricing volatility. Björn Steckel, EVP of Chemicals for the Americas region at Helm, commented: “A key factor is pricing. In commodity products like glycols or styrene monomer, we have seen some dramatic price decreases this year. Acetone has shown very strong demand, but it is a by-product of phenol, which has been impacted by weak demand due to the automotive industry crisis. In isopropyl alcohol (IPA), the crazy demand for hand sanitizer prompted us to source additional product from outside the region. Assuring the supply of certain products has become a major challenge. Fertilizers and crop protection have not stopped booming.”
Roberto Santos, CEO of large Brazilian producer Unigel, confirms that the agriculture industry in Brazil has seen zero impact. Before the pandemic, Unigel had already made a strategic decision to invest in fertilizers as the company’s third main business unit, complementing its acrylics and styrenics portfolio. Betting on highly-resilient and less cyclical business like agro seems like a wise move, especially now.
All this said, the future success of chemical companies will not be defined alone by the sectors they serve – these companies will also have to be very efficient, agile and innovative. Following years of poor market conditions with a lower oil-price since 2014-2015, several players had already engaged in internal restructurings to lose some fat. In Brazil, for instance, specialty chemicals producer Oxiteno had already undertaken a cost-cutting project in 2019 to simplify its administrative structure. In Colombia, Ecopetrol had also been implementing ‘transformation programs’ to increase efficiencies – while this year, at its newly-created trading arm, the company has been taking advantage of pricing volatility to capture the opportunities created by contango situations in some products. All examples that, in a changing world and a dynamic market, companies cannot stand still if they want to survive and thrive.
Image courtesy of Braskem
