Commodities 2021: Latin American polymer markets to enter 2021 with optimistic sentiment

Latin America is expected to start 2021 with optimism regarding the coronavirus pandemic, as the scientific community signals that vaccines could be ready faster than anticipated

The region was one of the most affected during the first half of 2020 and saw a quick recovery for the second half of the year, a trend expected to continue in the first half of 2021.

The pandemic surprised all players, but negative impacts expected for local economies were revised throughout the year as governments took action to mitigate the crisis. Plastic consumption is seeing strong demand entering the first half of 2021 after rebounding after an initial downturn.

The International Monetary Fund has revised its estimate for Brazilian GDP growth in 2021 to 2.8% from 3.6%, after revised its estimates for 2020 to a 5.8% decline from a 9.1% fall. Other regional economies like Argentina and Chile had stronger lockdown measures and slower economic recoveries, but are expected to enter 2021 with improved consumption as industries rebound to pre-pandemic levels. The IMF estimates Latin America's GDP will fall 8.1% in 2020 and grow 3.6% in 2021.

Those improved outlooks can be seen in Latin American polymers markets for 2021 as well.

Market players believe Latin America's automotive sector could boost polypropylene consumption in 2021. In Brazil and Argentina, vehicle production levels have recovered since May and normalized from August onward, while official associations have avoided making predictions for 2021. The sectors saw activity nearly halted in April amid widespread shutdowns to stem the spread of the coronavirus.

"Polypropylene prices will hold up better than polyethylene, but are expected to decrease by $100/mt or more over the next six months," said Robert Stier, senior lead for petrochemicals at S&P Global Platts Analytics.

The Latin American construction sector also largely stopped early in the pandemic, but soon saw strong recovery. The sector is expected to boost plastics consumption throughout the first quarter with the resumption of infrastructure projects.

In 2021, petrochemical run rates and demand across the region are expected to see increases compared with 2020.

"We expect South American ethylene and polyethylene fundamentals to look very similar to 2019 with respect to plant operating rates and net polyethylene trade," Stier said.

Higher demand, lower stocks

The industrial sector's struggle with a lack of feedstock was expected to extend into early 2021 before normalizing. Elevated demand in the second half of 2020 clashed with distributors' low resin inventories, prompting stronger prices for both imported and domestic material across the region.

Polyethylene prices in Brazil and West Coast of South America import markets should decline in the first half of 2021, Stier said, after declining since the start of November from all-time highs in September and October.

"By June, polyethylene prices are forecast to decrease by $200/mt from the current high levels which are a result of global outages starting with Hurricane Laura in late August," he said.

Brazil and the West Coast South America polyethylene import markets showed a fast V-shaped recovery, while prices lagged behind. Between May and June, prices reached record lows for both regions before shooting to record highs.

Market participants see no room for increases in domestic polyethylene prices in Brazil in early 2021 as Braskem evaluates currency exchange rates, local consumption and international price levels each month.

Polyethylene resins reached record-high domestic prices in Brazil in November, reflecting higher values in the import market and the strong devaluation of the Brazilian currency, the real.

Some players, however, were concerned that companies were still restocking inventories, possibly leading to a price rebound.

The expectation for 2021 is more stable currency values across the region, an important element for considering polymers imports.

The Brazilian Central Bank sees the exchange rate for the real ending 2021 at Real 5.20/$1 and, at the same time, the local annual interest rate up 1 percentage point, to 3% from the current 2%. Pandemic uncertainty caused the real to be one of the world's most devaluated currencies in 2020. The exchange rate started 2020 at Real 4.01/$1, considered high at the time, but surpassed Real 5.80/$1 in the first half of the year.

Brazil wasn't alone in facing currency devaluation. Argentina's currency devalued more than 30% and Colombia's more than 17%. Currencies in Chile and Peru were less affected.

In the Mercosur region, local distributors and traders believe limited product availability could continue until January, while expecting the situation to be solved soon as extra-zone materials are gaining market share. The region was mostly supplied by regional producers from Brazil and Argentina, high prices were not the issue as availability became nil during the latter half of 2020.