News Code : 43627

Petrotahlil :Argentina's recent presidential election is expected to impact several economic factors in the country for the next four years, and may change expectations for the petrochemical sector in the near future, market sources said this week.

Alberto Fernandez of the Frente de Todos party was elected president, accounting more than 48% of the vote in defeating President Mauricio Macri. Fernandez will take office December 10.

Market sentiment was that Fernandez would be the winner after primary results in October, but that did not cause much disruption to petrochemical markets. Sources are expecting price increases in the short term following the election, despite stability in the domestic polymers market.

Much of the concern lies in the belief the Fernandez administration could return to Cristina Fernandez de Kirchner's populist policies. Kirchner, president from 2007 to 2015, was elected as Fernandez's vice president.

Fernandez's election has already generated friction with Brazilian President Jair Bolsonaro, who has said if the new Argentinian administration was against the economic agreement between the Mercosur bloc and the European Union, Brazil would be in favor of Argentina leaving Mercosur. It is believed the Fernandez administration might review the agreement. Argentina is the No. 2 polyethylene exporter to Brazil -- behind the US -- and the first exporter of homo-polymer polypropylene to its neighboring country.

The Fernandez administration is expected to invest in infrastructure, which could generate foreign investment or it could scare away potential investment opportunities due to the default of $1.3 billion in 2014 under the Kirchner administration.

NEW RESTRICTIONS A CONCERN FOR PARTICIPANTS

Argentina's central bank on Monday restricted US dollar purchases to $200 a month - down from $10,000 a month -- until December, when Fernandez takes charge, a strategy to retain investors by reducing the US dollar demand and to stabilize the Argentine peso.

"One of the problems of our country is the lack of US dollars to pay the external debt, to meet the need of importers and the demand of local savers, who historically take refuge in hard currencies to cope with the high inflation we have," a local petrochemical source said.

Argentina has restrictions on the purchase of dollars for savings, so companies cannot buy to pay dividends abroad but can to pay their debts for purchases or loans.

"I think these restrictions are going to be maintained and maybe deepen even more," the source said. He said he could see a future restriction on imports, benefiting local producers.

"Not only because of lower imports of polymers would enter our country, but their customers would also be protected in some way, which causes a double effect: greater market share, and greater internal demand," he said. "But I also expect an increase in prices, due to less competition."

Another source said, "Customers are under a lot of fear that imports could be closed again and local producers would take advantage of the protection to sell at illogical prices."

A third source, however, said the government change only happens in December.

"For now, the market is the same. No change."

ARGENTINA PRODUCTION EXPECTATIONS

Argentina is expected to produce 581,000 mt of polyethylene in 2019 and 2020 of its installed capacity of 630,000 mt. Demand for PE products is expected to be 695,000 mt for 2019 and 705,000 mt for 2020, ending with a deficit of 115,000 mt and 124,000 mt, respectively, according to S&P Global Platts Analytics.

Argentina's polypropylene installed capacity is 320,000 mt/year, while production forecast by Platts Analytics expects run rates to be 91% and output to be 291,000 mt in 2019 and 2020, with PP demand at 296,000 mt and 299,000 mt, respectively.

Petrochemical producers in Argentina include state-owned YPF, Dow Chemical, Petrocuyo, Simpa and Pampa Energia. Dow Chemical, the country's main PE producer, reported an explosion at its cracker 2 in late June 2019. Operations resumed in late October. While the company was offline, traders focused polyethylene materials toward Argentina ,tracking the demand opportunity, adding margins were better than in other Latin American regions. Market players said pricing may decline by the end of November and supply should significantly increase.

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