"We managed to convince the government that any continuous process plants, essential or not, should not stop. So polyethylene plants, urea plants, and any other facilities that do not work on a batch basis, could continue working."

Jorge de Zavaleta

EXECUTIVE DIRECTOR, ARGENTINE CHAMBER OF THE CHEMICAL AND THE PETROCHEMICAL INDUSTRY (CIQyP)

August 12, 2020

 

 

Before we discuss the pandemic, how did Argentina’s chemical industry end 2019?

Like for other segments, 2019 was a very challenging year for the industry in Argentina as a result of the weakness of the different value chains that use our products and other circumstances like local currency devaluation and interest rates going up from 50% to 68%. The petrochemicals and chemicals industry had a 4% contraction year-on-year in terms of production volumes. The sales value in US$ plummeted by 25%, and the value of exports also fell by 32% in US$. The commercial balance for 2019 showed a deficit of US$4.4 billion, just 0.67% higher than in 2018. This deficit is lower than Brazil’s, which is over US$30 billion, even if we consider that Brazil’s population is five times Argentina’s. Argentina has the particularity of having a lot of natural gas and a large petrochemical pole in plastic resins and performance chemicals and exports nearly half of its production, while Brazil primarily serves its internal market.

Another issue we had last year and that continues today is export taxes, which generate a substantial portion of the government’s revenue, affecting mainly the agriculture and mining sectors, but also chemicals. In 2019, the Macri administration increased these export taxes which affected our competitiveness in the international markets.

So, the economic situation was not ideal when 2020 started, then came the coronavirus. How is the industry weathering the storm?

The pandemic caught all governments by surprise and Argentina decreed a strict lockdown, which helped keep the number of deaths lower than in other countries, but also had a great impact on the economy. We were lucky that the Ministry of Productive Development was in close touch with the different associations. We managed to convince the government that any continuous process plants, essential or not, should not stop. So polyethylene plants, urea plants, and any other facilities that do not work on a batch basis, could continue working. Also, the agriculture sector was declared essential from the beginning, and the chemicals industry is strongly linked to it with fertilizers, agrochemicals, plastics and agriculture equipment manufacturing. On the other end, some chemical production was declared non-essential, such as the adhesives for construction, but by May-June 2020, the different municipalities approved the reopening of the industries that had shut down under strict safety protocols. If we look at some numbers, in May 2020, we only had a 15% production reduction year-on-year.

Did the temporary crisis of the oil and gas price during the lockdown hamper the availability of feedstock in Argentina?

The availability of gas-based feedstock in Argentina has never been a problem, even during the low period of demand. There was an issue with the availability of refinery-based products however, because refineries decreased their production volumes for a period of time. Now, fuel demand is increasing again, from 50% of normal levels during the lockdown to around 70% in July 2020, so the industries do not have issues to obtain feedstock any longer.

Do you think the wider population has changed its perception of the chemical industry, considering how necessary it is to fight the pandemic?

Chemical products are proving to be essential to tackle the pandemic and we realize that the authorities, at very high levels, now perceive the chemicals industry very differently than in years prior. The way we have worked with the government over the last months demonstrates that the different authorities have more awareness of the importance of the chemicals industry, however we do not know if the same applies to the general public as we have not done any study related to that.

What are your forecasts in terms of GDP contraction this year, and what are the prospects for the chemicals industry?

The IMF predicts that the Argentinean economy will fall by 9.9% in 2020, but we think contraction will be even more severe than that, considering there are still some industries shut down and that the State is covering nearly 50% of the salaries for those companies. Our sector is very particular, because we are an industry that feeds other industries. 96% of industrial processes use chemical products. Without polypropylene or special paints, the automotive industry cannot operate, for example. So we are working little by little to restart everything. We are worried about the short term; the challenge for 2020 is enormous, but the long term fundamentals do not change. The prospects are positive, especially if we manage to come out of this crisis as a more competitive industry, but first we need to defeat this pandemic.

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