Latin American petchems could take a hit on currency depreciation across the region

Sao Paulo — Latin American countries are expected to face challenges in the petrochemical trade flow following currency exchange depreciation in the region due to uncertainties generated by the coronavirus pandemic and a global stock market collapse, which could decrease volumes or create payment issues, sources told S&P Global Platts on Thursday.

In Argentina, the Peso's decline was minor since the beginning of the year, with the country not being economically impacted by coronavirus' pandemic as such.

The Peso started January at 60/$1 and was at 62/$1 as of Thursday.

In 2019, the peso's value had nosedived nearly 60%.

"The plastic prices in Pesos are rising following the devaluation, but it's quite small difference," a domestic distributor said. "The only thing that may affect the market somehow is producers putting on hold their planned increases due to the uncertainty in the market, which is actually happening in Argentina."

Brazil was the most affected country of the region in 2020, as the Real decline by about 22% against the US dollar since January 1.

In the opening of the market on Thursday, the US dollar reached 5.02/$1 against the Brazilian Real, the highest exchange value rate for the greenback against the Real in history.

In the afternoon, it retreated and closed at 4.79/$1, still the highest nominal exchange rate historically..

A Brazilian trader said operations have been affected lately.

"Clients are not calling, and we imagine some issues with payments in the near future," the source said.

A US trader said the volume sold to Latin America has been stable, however "it is seriously affecting payments."

Another local trader said volumes are already been affected due to the situation, and it shall impact more in the near future as the market hasn't had time to process what's currently happening worldwide.

"The greatest difficulty right now is to set prices not knowing where the exchange rate could go."

For most traders in Brazil, the currency exchange is due on the settled payment day, whether this be when the client closes the deal, whether in 30 days from there or on delivery, depending on each particular agreement.

"No one hedges," the trader said.

Considering that scenario, if a client closed a deal in mid-February, when the Real was 4.30/$1 and is paying upon delivery today, the difference would be around 14%.

Some US traders said they are not having their business affected by the currency exchange lately, especially considering shipments to the West Coast of South America.

"We are actually selling a lot of volume, so no impact so far," a US-based Latin American trader said.

In Colombia, a trader said up to date volumes have not been affected due to the exchange rate issue.

"However, there's a scenario of high uncertainty. Buyers and sellers are both confused," the Colombian trader said.

The Colombian Peso has been one of the most affected since January 1, down about 20% to 3951/$1 as of Thursday morning.

Ecuador, in comparison did not face currency depreciation as its Latin American peers as the country is dollarized, which means, the US dollar is commonly acceptable.

In Peru, the total decline for the Preuvian Sol since January 1 was around 7% to 3.54/$1, which did not affecting business in the region, sources said.

A Peruvian trader said the situation was generating passivity in the market, and prices could be affected soon.

In Paraguay, so far the currency situation hasn't been an issue, according to sources.

"No client has showed any concern so far regarding currency exchange," a local trader said. "Our exchange rate, The Paraguayan Guarani compared to the US dollar, is not a transcendent thing."