Latin American petrochemicals face multiple shocks in the second half of the year

Trade tensions between Brazil and the United States have further weighed on Brazil's chemical sector. Some goods have superimposed tariffs of up to 37.5 per cent, including a 25 per cent additional tariff on 301 terms and an additional 12.5 per cent tariff based on allegations of forced labor in the supply chain. To this end, the Brazilian government launched the "Brazilian Sovereign III" credit program, which is managed by the Brazilian national research bank BNDES, with a total amount of R$ 18.5 billion. Funds are targeted to support companies affected by U.S. tariffs to working capital, equipment procurement, production investment and technological innovation, covering categories related to 232 terms and 301 terms. Andre Passos, Abiquim CEO of the Brazilian Association of Chemical Producers, said: "This policy can efficiently hedge against tariff shocks, and the key now is to clarify the credit consumption details as soon as possible to ensure that funds land rapidly." Meanwhile, Brazil has filed a formal complaint with the World Trade Organization (WTO) over US tariff policies. Passos said that trade data have shown the negative impact of Brazilian chemicals on US exports, with Brazilian chemical exports falling from US $2.2 billion to US $1.8 billion.

to Brazil's chemical sector, in addition to tariffs, there is also the debt issue of Brasco, the largest chemical company in Latin America and Brazil's polymer leader. Blasco was downgraded to an equivalent default rating by both S & P Global Ratings and Fitch. As a result, S & P downgraded Brasco's debt rating to D (default grade) and Fitch to C. The court in Sao Paulo granted the company a 60-day injunction allowing it to suspend payments to creditors involved in the mediation. S & P said the ban is tantamount to a debt moratorium, allowing companies to suspend repayment of related debts to creditors involved in the mediation to 60 days.

In July, it was revealed that the market was worried that Brasco's financial difficulties might result in Brazil's domestic polyethylene plant to stop production, and polyethylene buyers began to actively look to alternative sources. Meanwhile, Brasco's Mexican subsidiary, Blasco Idessa, is considering filing to Chapter 11 bankruptcy protection under the U.S. Bankruptcy Code as restructuring talks with bondholders broke down.

The significant divergence in the outlook of major Latin American economies is also affecting the chemical sector. A strong Colombian peso and a surge in Argentina's energy exports were among the few bright spots, however a rebound in inflation, fiscal tightening and a fall in international oil prices might make the region's overall economic development reduce than expected, dampening regional demand to chemicals.

According to the capital economics report of the consulting agency, the economic performance of Latin American economies in the second quarter was uneven. With commodity prices down, fiscal contraction and job market cooling, economic development might continue to fall short of market expectations in the coming years. According to capital economics analysis, Brazil's economic momentum slowed in the second quarter, however the quarterly development rate is still expected to reach 0.5 to 0.7 percent, and inflation fell to 4.6 percent year-on-year in June. Brazil is the country that has suffered the most from U.S. tariff policy, however the trade diversion effect can partially cushion the impact. Mexico's economy experienced negative development in the first quarter, and preliminary data showed a strong rebound in the second quarter, with development reaching 1.5 percent, avoiding recession. A surge in energy exports boosted Argentina, helping the central bank replenish its historically low foreign exchange reserves and strengthening the real exchange rate of the peso. However, capital economics believes that Argentina's regional currency valuation is too high, and related issues will be difficult to resolve before next year's election; despite the economic recovery in June, the country's overall economy still contracted in the second quarter. Colombia's economy expanded strongly, while Chile and Peru grew weakly.