Argentine plastics industry heads hopefully down rocky road to recovery

After suffering from a colossal decline in demand due to the economic recession that plagued the country from 1998 to 2002, the Argentine plastics industry is cautiously optimistic.

While in some cases production declined by 20% in a matter of months during 2002, the most difficult year of the crisis, steady economic growth, coupled with higher exports have helped the plastics industry to resume and in some cases surpass pre-crisis production levels.

The success of the first Plásticos exposition in Buenos Aires is an indication of the improvements in the Argentine plastics industry. Plasticos ''05, held in late June in Buenos Aires, surpassed initial expectations, with nearly 10,000 people visiting the during the five-day event. Plásticos ''05 had 231 exhibitors, including local and international machine manufacturers, as well as representatives from local industry associations. The event''s organizers are already planning a similar event for 2007.

Likewise, participants in the event were pleased, and plan to participate in 2007. According to Gabriela Rodofeli, the export manager of Rodofeli and Compania, Argentina''s largest machine manufacturer and exporter, the event surpassed expectations. Rodofeli said that many interested buyers from Chile, Bolivia, Peru, and Colombia visited their stand.

Similarly, Luciano Martínez, sales director of Fluidmec, another important Argentine machinery producer, said Plásticos ''05 was an excellent opportunity to meet potential clients and to renew contacts with current clients.

Both Rodofeli and Martínez said that Argentine plastics processors are finally beginning to expand capacity.

There are also several sectors that are booming, in large part because of the crisis, including plastics recycling. According to Miguel Cieri, the president of of Civemaq, the high price of thermoplastic resins, coupled with a growing number of people supplementing their incomes by collecting recyclables, has helped boost the market for machinery that recycles plastic product back into resin. Demand is so strong for new machinery that Cieri is considering increasing production to meet his growing order list.

Conerns about China

While sales are on the rise, Argentine machinery manufacturers said there is growing concern about increased competition from imported Asian machinery. While many local processors have shied away from Chinese machinery, local manufacturers fear that unless the government comes up with a more coherent trade policy, it will be increasingly difficult to survive.

While in many cases it''s difficult for local machinery producers to go head-to-head with Chinese producers on price, they have been able to maintain market share by guaranteeing speedy repairs and technical support.

"Chinese machines are cheaper, but we have an established network of technical support and a focus on customer services, which has helped us maintain market share," said Rodofeli.

Likewise, Asian machinery manufacturers had a strong presence at the event and are hoping to capitalize on the country''s growing demand for plastics. In an effort to expand their market share, resellers in Argentina are actively seeking to improve the image of Chinese machinery, according to Juan Jose Rodriguez, the sales manager of Nesher, a local reseller of China''s Haitian injection molding machines. In an effort to guarantee speedy repairs, the company maintains a significant stock of spare parts. Furthermore, the Chinese machines imported by Nesher use German technology (Demag).

As Chinese industry makes headway into Argentina, there is growing concern about unfair competition. As is the case in neighboring Brazil, Argentine machinery producers are concerned about illegal imports. Local industry officials say contraband Chinese products are increasingly entering Argentina tax-free, which makes it difficult for local producers to compete.

"The government needs to focus on controlling imports, otherwise the local industry will have a hard time surviving," says Civemaq''s Cieri.

In addition to controls on imports, Argentine industry is also demanding that the government offer tax benefits for exports. "With the current tax structure, exporters are punished," says Rodofeli.

Yet even under the current tax structure, exports have been on the rise. Since 2001, when Argentina ended its currency control, which artificially over-valued the exchange rate, Argentine products have become much more competitive.

Rodofeli says that during the worst period of the crisis, the company was able to offset declining domestic sales by increasing exports The company also set up offices in Brazil, Chile, Mexico, and Peru.

Positive indicators

The same has been true for the plastics industry in general, which has seen increased sales in recent years. As a result, the outlook for 2005 is one of cautious optimism. Growth has been robust and the recent debt restructuring agreement has helped the country to slowly gain access to international credit markets.

In 2004, Argentine annual plastics consumption reached 31.5 kg per capita, its highest rate ever, and a significant improvement over 2002, when plastics sales plummeted to 21.2 kg per capita. Plastics use in Argentina increased by 18.5% in 2004, reflected in both the 11.1% increase in production and the 16.6% increase in imports. Given projected economic growth of 6% for 2005, the domestic demand is expected to continue to increase this year.

Exports are also on the rise. "In the early 1990s, Argentina exported 3% of its total plastics production and in 20004, roughly 10% of total production was sold abroad," says Oscar Sánchez, the manager of the Argentine Plastics Industry Assn. (CAIP). The association has set up a series of programs to help increase exports. In Argentina, there are nearly 2300 companies dedicated to plastics processing, the majority of which have fewer than 10 employees.

Challenges remain

Despite the optimism in Argentina, the industry still faces a series of hurdles, including limited access to credit, economic uncertainty, potential power shortages, and high costs.

Argentina could export more, according to Thomaz Gruber, the director of rigid packaging for Dixie Toga, which operates in Argentina under the name American Clave. Gruber says that high freight costs can add 20% to 40% to the cost of a product, making Argentine products uncompetitive abroad.

One of the most difficult challenges for small plastics processors in Argentina is access to credit. "Almost all investments need to be company financed, because loans to businesses dried up during the crisis," says Sánchez. He adds that some credit lines are beginning to reopen, but added that for the most part, machine manufacturers are forced to provide credit or co-sign for their clients for investments to move forward.

Another concern is high feedstock prices. Because all of Argentina''s major thermoplastic resin producers use international feedstock reference prices, the cost of feedstock in Argentine pesos continues to be quite high. "We have no concerns about supplies, but prices are always a concern," says Sánchez. He adds that because there is only one local producer of each of the major feedstocks, it is difficult to negotiate lower prices and often makes sense to import raw materials, despite abundant local production.

Another concern is possible energy shortages that Argentina could face in 2005. During the crisis, there was little investment in new energy capacity and as a result, with renewed economic growth, the country is facing limited supplies of power. "Until now, Argentina has been able to pass the problem off into Chile, by cutting natural gas exports," says Dixie Toga''s Gruber. To secure energy supplies, Dixie Toga was forced to sign a long-term contract with a local power company that increased its electricity costs by 55% over the past 12 months.

By Elizabeth Johnson

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