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Latin American polypropylene market to continue to look to Asia, Middle East for direction

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Latin American polypropylene market to continue to look to Asia, Middle East for direction

The Latin American polypropylene market is expected to continue to look to the Middle East and Asia for direction instead of the US in 2020, sources say.

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Commodities 2020 | S&P Global Platts

Latin American polypropylene markets will continue to eye US propylene, the region's main source for the feedstock, but polypropylene pellet players will continue to look toward the Middle East and Asia, which are markets more impacted by oil and naphtha prices.

Polypropylene markets may see a boost in supplies, particularly in Latin America's leading economy - Brazil, amid sluggish demand throughout the end of the quarter, which is expected to carry on through the first few months of 2020, the sources said.

However, consumption is expected to increase on seasonal demand, but remain stable when compared with the year-ago period, sources said.

The region has been closely eyeing pricing trends in the Middle East and Asia.

Latin American countries - in particular Argentina and Colombia - are exporters of homo-polymer and copolymer materials, respectively.

Brazilian CFR homopolymer and copolymer film and US Houston FAS pricing are historically correlated, with Brazilian prices also moving in tandem with Asian and Middle East prices, according to data from S&P Global Platts.

South American polypropylene market participants have varied options, with imports coming from Asia and the Middle East, and supply from Argentina and Colombia representing over 60% of the market in 2019 for homo-polymer, and Colombia representing over 26% of the market in copolymer products, followed closely by Saudi Arabia with 23%.

On the other hand, West Coast South America PP copolymer film and homo-polymer CFR prices are more positively linked to US Houston FAS prices movements than to other regions, but also very closely tied to the Middle East.

Pricing in the region could also be impacted by the US-China trade dispute, which has already affected Asian demand for downstream goods, leading to cautious buying interest earlier in the year.

Along the West Coast of South America, regional producers are expected to continue the battle to retain customers and to be the preferred source over imports. Sources have said Colombian players were extremely aggressive in prices during 2019, and the expectations are for a similar scenario in 2020. Colombia is expected to have a surplus of 194,000 mt of PP available for export in 2020, S&P Global Platts Analytics estimates.

As a result, Latin America is expected to remain the most likely destination for the remainder, which has being influencing local prices since the beginning of 2019, when trade flows were affected by US-China trade tensions.

Latin American market participants are expected to continue to see an uptick in offers from the Middle East, Asia and the US. Buyers will have to plan more for Asian shipments, as they come with a longer delivery time, which is talked at between 60 and 90 days, compared with a 30-day delivery window advantage from the US.

Commodities 2020 | S&P Global Platts

-- Guilherme Baida, guilherme.baida@spglobal.com

-- Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com