Unfortunately, in Argentina, you need to dedicate all of your efforts to the day-to-day situation. Over the second half of 2018, volumes decreased by 30% virtually across the board. Financially speaking, you can lose all your previous work in one day, such as when the dollar went down from 28 pesos to 42 pesos in a matter of hours.”

Enrique Flaiban

GENERAL MANAGER, PETROCUYO

March 08, 2019

What is Petrocuyo’s positioning following the merger with Petroken?

In February 2016 Petroquímica Cuyo finalized the acquisition of Petroken, and the legal merger was completed in 2018. We are now rebranded as Petrocuyo and have two production plants: one in Luján de Cuyo (Mendoza) and one in Ensenada. We are in the process of consolidating the new corporate culture, combining the best attributes of each company. Within the region, we are the smallest player in polypropylene, but we are also the fastest one. The Ensenada has been working at 168,000 tonnes per year (mt/y) in recent years, and we are pushing that up to 190,000 mt/y. At Luján de Cuyo, the capacity is 120,000 mt/y. Additionally, at Ensenada we have 25,000 mt/y of capacity for specific compounds for the automotive and domestic appliance industries.

With the merger, we have created synergies in terms of where we process each propylene molecule and which products should be produced in each plant. At Luján de Cuyo, for instance, we are concentrating on the copolymers business. This gives more continuity to the plants’ operations. We work for the whole industrial segment, with end sectors such as: automotive, domestic appliances, raffia fibers (bags), film, injection, thermoforming, piping for construction and others. The trend is to have products that offer better performance with less weight and cost.

What are the feedstock and market situations in Argentina for the polypropylene business?

We take every propylene molecule available and we could even take more, but there is an issue with feedstock in Argentina. Although there is an opportunity with Vaca Muerta in the medium term, in the meantime we may source propylene from other countries. However, we need to define if we can do so in a competitive manner.

In terms of markets, the Macri administration in Argentina opened up and we could see more imported product. This forced us to look for markets outside. We already had a presence in Brazil and we have also sold to other countries on the Pacific coast, so 30% of our production is exported. This helped us during the devaluation as 30% of our sales were in dollars.

Argentina does not yet have the scale to be very competitive when compared to foreign players. Argentina’s polypropylene market is 330,000 mt/y, while the United States is adding capacity of 3 million mt/y through their investments. Brazil has installed capacity of 1.8 million mt/y, Colombia has a capacity of 450,000 mt/y and Arab countries have enormous capacity as well. If these countries bring product to Argentina, they could cause significant disruption. However, Argentina’s macroeconomic instability acts as a barrier to entry for them.

What are the challenges in Argentina when it comes to planning ahead?

Unfortunately, in Argentina, you need to dedicate all of your efforts to the day-to-day situation. Over the second half of 2018, volumes decreased by 30% virtually across the board. Financially speaking, you can lose all your previous work in one day, such as when the dollar went down from 28 pesos to 42 pesos in a matter of hours. When you source your feedstock in dollars and all your billable is in pesos, the devaluation can create a mess.

With regards to exports, the problem is that the government initially eliminated the refund for exports, which was equivalent to 4.5% of the FOB value and compensated for some of the taxes paid. To compete internationally with companies like Braskem, Essentia and the Arab and Korean players, the margins are really low, so this change by the government put our exports at risk. Moreover, after that, the government reestablished the export tax of three pesos per dollar exported, which had an impact of an additional 7%, so overall these two changes had a 12% impact on our exports. The government defends that this has been offset by the peso devaluation, but we buy our feedstock in dollars. Plus, energy costs and financing costs are much higher in Argentina than elsewhere in the region. We are working very hard to pass this message on to the government.

In this challenging environment, what are the prospects for the future?

Argentina has human resources and natural resources; all it needs is better management of the macroeconomic variables to reach the necessary stability. Our main shareholder is strongly committed to Argentina, as shown by its acquisition of Petroken and its participation in TGS. We want to be an important player in Argentina and the region – we have the natural resources, and the Brazilian market is next door.

Finally, is the industry in Argentina pushing for more recycling?

We participate very actively in Ecoplas, an organization that provides information about the need for recycling. It is an important effort, because in Argentina there is not a great recycling culture. We give support to some recycling cooperatives through the donation of defective product, but the legislation in Argentina does not help. In Buenos Aires, for instance, there is no separation of waste.

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