With a significant amount of new polymer capacity coming on line in the United States, producers are hoping that export markets will provide outlets for their excess product. One of the key outlets they are thinking about is Latin America. That’s the traditional export market for US polyethylene (PE), and many of the announcements about increased capacity have made mention of meeting the polymer shortfall in Latin America. Unfortunately, a good look at the math will temper those expectations.
North American polymer producers have been making gains in Latin America for some time, but that has come at a cost. They have been selling aggressively into the region, and they have gained PE import share over the past decade, generally taking volume away from companies in Europe, Asia and the Middle East. However, some of this share has been bought with reduced pricing. Recent data (See Figure 1) shows that North American-sourced PE has come into Latin America at lower prices than from other regions, including the Middle East—which is the lowest-cost producing region in the world, and one that has also been expanding PE capacity.
At the same time, Latin American markets are seeing weak economic growth. Since the middle of 2014, Latin American GDP growth has been disappointing (See Figure 2). As the region’s imports grew, the PE trade deficit with North America increased over much of the last decade, widening 17 percent per year between 2005 and 2014. However, that deficit shrank by 7 percent in 2015—the first decline since the 2009 recession, and a clear warning sign to producers counting on this to be a robust export market (See Figure 3).
Finally, exporters should remember that the total Latin American import market is still fairly small. Even if North American producers grow their current share of that market to 100 percent, the region will still only absorb roughly one third of the annual PE surplus expected by 2020 (That’s assuming, of course, that the Latin American market does not suddenly begin to grow rapidly.). Which means that those producers will still have to turn to other export markets to find a home for millions of tons per year.
All of this is not to say that producers should count the Latin American market out. Pipe and tube imports, for example, had strong growth from 2014 to 2015, reflecting a growing need for high-density PE pipe as water infrastructure and agricultural irrigation needs continue to increase. Newer products also show promise, such as PE netting used to protect crops, fruit-ripening sacks and aseptic food packaging. So, North American producers may be in a position to supply chemical products that help the region meet the food and water needs of growing populations.
Certainly then, there is opportunity in Latin America for chemical exporters. But the region is not likely to be a panacea for the growing supply of North American PE. With that in mind, North American producers will need to adjust their expectations, and consider complementing their Latin American exports with sales in markets such as China, India and Africa.