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February 28, 2003
6 Min Read
Latin American economies, with few exceptions, are plagued by recession, political instability, and internal strife. Brazil’s currency lost 52% of its value because of political uncertainty. Argentina’s economy has contracted by 20% since 1999. Venezuela’s industry and economy have been paralyzed by social and political upheaval.
While the road to recovery will doubtless be long and arduous, the worst part of the crisis appears to have passed and 2003 looks to be a better year, with improvements in the macro-economic scenario promising to boost regional demand for plastics.
South America’s largest economy, Brazil, is expecting 5 to 6% growth in demand for plastics this year (see following story). “Some segments will grow more than others,” says Cleantho Paiva Leite, export manager for Braskem, Brazil’s largest petrochemicals producer. Among specific resins, Leite expects demand for PET to increase by 8 to 10%, while PVC output should rise 3 to 5%, and polypropylene resin production should grow 6 to 8%.
The increase in demand for plastics is due in part to economic recovery worldwide but also because of high expectations for the government of President Luiz Inacio Lula da Silva, who took office on Jan. 1. Lula has promised to stimulate sectors of the economy, such as construction, and basic sanitation projects, which will increase demand for plastics, particularly PVC. Other initiatives, like the government’s hunger-elimination program, are expected to increase plastics demand because of increased purchases of packaged foods.
Higher expectations for the market have prompted new investments in the sector. Dixie Toga, Brazil’s largest plastics packaging manufacturer, and Finland’s Huhtamaki announced a joint investment of $12 million to build a factory that will produce polyethylene-aluminum laminate for toothpaste tubes.
MVC Componentes Plásticos, a subsidiary of bus manufacturer Marcopolo, recently increased capacity for auto parts and other plastics goods, such as telephone booths. The company also inaugurated a new plant in the southern state of Rio Grande do Sul, which can process 500 tons of thermoplastic resins per month.
Brazilian biaxially-oriented polypropylene producer Polo Indústria e Comércio plans to invest $40 million in a new plant to supply the market. Demand in Brazil for bopp has grown by 8%/yr.
Several resin plants are also scheduled to go on line in 2003 and 2004. Polibrasil, Brazil’s largest polypropylene manufacturer, is bringing a 300,000-tonne/yr facility on line. In 2004, Rio Polimeros is expected to bring a 540,000-tonne/yr polyethylene plant on line.
While both resin manufacturers expect domestic demand to increase, they are also planning to boost exports. Through a program launched last November, the industry seeks to increase exports 20% by the end of 2004, and to eventually transform the country’s $250 million trade deficit into an $800 million surplus.
“Brazil’s plastics industry has first-world technology and we expect to expand exports to 500,000 tonnes/yr by 2006,” says Merheg Cachum, the head of Abiplast, the Brazilian Assn. of the Plastics Industry.
The program will also help plastics manufacturers diversify exports. “In 2002, exports to Argentina declined by 63.7%, causing total exports to decline 16.5%,” says João Luiz Zuñeda, a chemicals analyst from Maxiquim. Other markets, like Uruguay and Paraguay, also suffered from the economic slowdown in Brazil and the meltdown in Argentina. Zuñeda adds that because of the abrupt decline in exports to its Mercosur trade partners, Brazilian companies were forced to look for new markets.
Uruguay and Paraguay are showing signs of recovery, and domestic production and imports are slowly returning to 2001 levels. Likewise, Argentina’s plastics consumption is beginning to increase as the economy starts to recover. However, it is expected to take years for consumption to reach pre-1999 levels.
According to Walter Schalka, CEO of Dixie Toga, the largest producer of rigid packaging in Argentina, production there declined by 12% in 2002. Currently, Dixie Toga’s two plants are operating at roughly 70% capacity. While production began to increase at the end of 2002 and has maintained higher levels so far this year, Schalka expects some turbulence in 2003 because of the presidential elections, scheduled to take place in April.
While packaging sales have picked up, sales of auto parts are expected to remain depressed. Last year, new-car production in Argentina for the domestic market declined by 32.2% in comparison with 2001, and exports were down by 20.7%. According to Ricardo Max Jacob, president of Plasticos Muller, sales of automobile components to Argentina are slowly beginning to increase, but until the country’s buying power increases and consumer confidence grows, the automobile manufacturing industry will remain depressed.
The scenario in Brazil’s automobile industry has not been as dramatic, but sales have been flat, at around 1.8 million vehicles/yr for the past two years. Jacob, who has been operating his plants at around 60% capacity, doesn’t expect big changes this year.
While the Mercosur countries (Brazil, Argentina, Paraguay, and Uruguay) are showing signs of recovery, the scenario in Venezuela remains unclear. The country’s plastics industry, which was paralyzed by resin shortages during the general strike that stopped all economic activity throughout most of December and January, did not expect to return to normal until the end of February. The Venezuelan economy, which contracted by 9% in 2002, is expected to struggle this year.
Chile, meanwhile, continues to be a success story. Its plastics industry has been growing at 7 to 9%/yr for several years, and Jorge Vergara, manager of the Chilean Plastics Industry Assn., expects growth in 2003 to be the same.
Packaging represents 48% of the industry’s production. While Chilean producers have exported finished products to Peru and Argentina, with the economic downturn in these regions, they have been seeking other markets. Despite the decline in exports to Peru and Argentina, Vergara says that exports in 2002 were on the same levels as 2001.
He expects exports to the U.S. to increase as a result of the recently-signed trade agreement with America. “There will not be many direct exports of plastics goods, but we expect an increase in demand for plastics to come from increased exports of fruit, fish, and wine,” Vergara says.
It’s no surprise that the Chilean plastics industry – and business in general – has been doing well. The government has been supportive of private enterprise and, most importantly, operates more efficiently and productively on behalf of its citizens and businesses than many other governments in the region – or the world, for that matter.
Figures compiled by the World Bank attest to this. In ranking the efficiency of government in seven countries, the World Bank evaluated how public policies affect the quality of life and services for citizens in each nation. On a scale of 1 to 100, Chile led the group far and away with a rating of about 85. The other countries, in order of their ranking, were South Korea, at about 70; Mexico at around 68; China at 59; Brazil at just under 50; India at around 45; and Russia at around 25.
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