SAO PAULO (ICIS)–The global downturn in petrochemicals may still need to reach a bottom as new geopolitical tensions add pressure to energy and feedstocks supplies, an executive at France’s chemicals major Arkema said on Monday.
Romulo Bastos, supply chain director for South America at Arkema, added that as long as China continues exporting its excess product at very low prices, the industry globally also will continue to be hit.
The executive added that Arkema’s operations in Brazil remain healthy – “the business divisions performing well cover for those which are struggling” – but added that the company is having difficulties in Argentina as the country’s financial crisis deepens.
Bastos was speaking to ICIS on the sidelines of the annual meeting of the Latin American Petrochemical and Chemical Association (APLA).
In Brazil, Arkema produces specialties including materials for coatings and adhesives, organic peroxides for elastomers and benzoyl peroxide, chemicals for oilfield, mining and home and industrial care, acrylic sealants and adhesives, construction chemicals and specialty surfactants.
In Argentina, they produce mercaptan, an odorant to add to gas.
Bastos said Arkema’s South America operations – including all Latin America apart from Mexico – represented “around 2%” of the company total. In 2022, Arkema’s sales stood at €11.5 billion, so South America’s revenue would be around €230 million.
GEOPOLITICS BITE
Bastos falls on the pessimistic side on the Israel-Gaza conflict. He said the conflict has many chances to spread regionally, which could end up adding pressure to the chemicals industry, as the Ukraine war did.
In his opinion, Iran could easily get involved, sparking a regional conflict in what is already one of the most convoluted regions in the world.
“I am very concerned about conflict, and especially if Iran was to join. It happened with the Russia-Ukraine: we had some good relationships with some Russian providers, but that has completely been cut off now because regulations don’t allow us to do deals with them anymore,” said Bastos.
“Equally, I am concerned about the Israel-Gaza war getting bigger, and that would bring problems for energy supplies, petrochemicals, food supply and prices: That is what I am afraid of.”
CHINA EXCESS PRODUCT
Another reason why the petrochemicals industry may need to get worse before getting better is China’s persistent exports of excess petrochemicals at very low prices.
Bastos wondered “how far they can handle” the low prices for several petrochemicals: according to him, many chemical players in China must be doing very little or no profits at all.
As China became self-sufficient in chemicals, its economy slowed down as the recovery from its long COVID-19-related restrictions is taking longer than expected.
“They keep producing large amounts just to ship them out of China. They are now covering some gaps [in terms of keeping the plants and employment going] but I am afraid soon they will have a lot of holes to fill, and they won’t be able to do that,” said Bastos.
“How long it will take for them to rip all these losses? At the prices they are selling product, they are not making any profit, and the bill will come sooner or later.”
Other Latin American petrochemicals players have said China’s industrial fortunes are to impact the region.
Mexico’s chemicals producer Orbia said in October exports of polyvinyl chloride (PVC) out of China will continue due to the ongoing crisis in the country’s construction sector, depressing global prices.
Alpek, another Mexican producer, said it was observing some recovery of margins for polyethylene terephthalate (PET) in the country, a key factor for the global PET industry to recover.
Earlier on Monday, Bastos said, however, that when it comes to imports into Brazil, the rise in imports of certain basic chemicals and materials is helping certain specialty chemicals producers such as Arkema.
Other chemical players in Brazil, such as polymers major Braskem or the country’s chemicals trade group Abiqium, have repeatedly said imports into Brazil are putting a strain on local producers, many of whom could be at risk of closure due to imports at “predatory prices”.
Bastos added that, in general, China’s size and high levels of indebtedness could pose a global risk.
“A systemic crisis in China could bring a lot of problems for countries like Brazil, which sell a lot to China, from meat to grain,” said Bastos.
The 43rd APLA annual meeting takes place on 11-14 November in Sao Paulo, Brazil.
Interview article by Jonathan Lopez
Additional reporting by Joseph Chang