Interview Bn 16 Nov 2009


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Interview to BN Americas about Engineering Plastics - 16nov2009

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Interview Bn 16 Nov 2009

  1. 1. "Environmental concerns are major trends in the engineering plastics sector and the Latin American regulatory framework is moving toward this trend" Alessandra Lancellotti Latin America research analyst for chemicals, materials and food/Frost & Sullivan Published Monday, November 16, 2009 Latin America's engineering plastics market is forecast to grow 4.4% annually to US$2.51bn in the 2008- 15 period, according to market research company Frost & Sullivan. Last year revenues grew 5.4% to US$1.86bn, driven by the automotive industry, but are expected to decelerate this year as a result of the economic downturn and increased raw material prices. BNamericas spoke with Frost & Sullivan research analyst for Latin America's chemicals, materials and food division, Alessandra Lancellotti, to learn more about what's driving growth in the industry and the impact of the economic crisis. BNamericas: What is driving growth for engineering plastics in Latin America? Lancellotti: In Brazil, for example, government incentive programs such as [reducing] the industrialized products tax [IPI] on vehicles and consumer products have helped to mitigate the impact of the crisis on sales so the market hasn't suffered as much as the US and it has started down the road to recovery much sooner. Besides, the sustained growth in the industrial sector in Latin America is a major force driving the engineering plastics market. The automotive sector registered expressive growth rates in Latin America in 2008. In Brazil, the automotive sector grew at a rate of 20.5% in 2007 and 14.5% in 2008. In Argentina, the automotive sector grew about 23% in 2007 and 8% in 2008. Of course the sector suffered with the economic crisis, however, the recovery is already happening in the region. Also Latin America is considered to be in an early stage of development and therefore presents many growth opportunities through new applications and market niches. Most of the companies producing engineering plastics in Latin America are pursuing applications outside the automotive industry, particularly applications that can replace metals and glass. BNamericas: What are the main applications for engineering plastics in the region? Lancellotti: The most important applications are in the automotive industry, which today accounts for 66% of sales volumes, followed by electronics with almost 10%, consumer products 7% and a fragmented range of applications used in construction – engineering plastics replacing glass windows – bottles, leisure equipments, and consumer products, among others.
  2. 2. For example, PA [polyamide] is very dependent on the automotive industry. POM [polyoxymethylate] is also used in the automotive industry, but to a lesser extent, and many companies are looking to develop alternative applications as it is very versatile. Some 75% of the market for polymers in Latin America is for applications used in the automotive industry and for POM it is 45%. POM is also used in consumer products. BNamericas: In which applications is growth strongest? Lancellotti: In 2008, there was strong growth in the automotive industry and today new applications are driving growth as companies look to reduce costs and replace metals and glass in the automotive and construction industries with engineering plastics. Prices of POM, for example, have decreased over the years in Latin America, making them a viable alternative to a wide range of applications. There are some projects to replace glass with polycarbonate [PC] in the automotive industry too. The automotive industry is still leading the growth for engineering plastics, but the electronics industry is also gaining an important presence in this area. BNamericas: What is driving companies to replace traditional materials with engineering plastics? Lancellotti: In the case of the automotive and construction industries, they are very aligned with European regulations to reduce the weight of the cars as well as CO2 emissions to meet environmental regulations and targets and therefore they are very engaged to replace metals with engineering plastics. For consumer products, the final price to the customer is very important so replacing metals with plastics can create a competitive advantage for companies. The properties of engineering plastics, in some cases, are very similar to metals with a high thermo resistance and stiffness, making them genuine alternatives. BNamericas: How much of a factor is the price of oil in the engineering plastics industry? Lancellotti: As petrochemical resins, the cost of engineering plastics is closely related to the price of oil. The price of these plastics, however, can be associated to its value-added properties. At the beginning of the year, the price of oil dropped by US$50/b, which is good for producers of engineering plastics, considering costs, but the problem was the slump in demand. In the first quarter of 2009, imports of engineering plastics into Latin America fell by about 45% compared to the first quarter of 2008, which represent a huge amount of lost revenues. This slump in demand also forced producers to reduce resin prices, even for more value-added plastics, so the reduced costs did not represent increased margins. BNamericas: Which are the most developed markets in the region? Lancellotti: Brazil is the most developed market for engineering plastics and corresponds to 44% of the Latin American market, followed by Mexico with 37% - which is the only producer of PBT [polybutykene terephtalate] in the region. Elsewhere in the region there is some production in Argentina, of PA, and Colombia, with the remaining countries accounting for about 5%. The market is dominated by multinational manufacturers such as Basf, DuPont and Sabic, among others. BNamericas: Are Brazil and Mexico large consumers of engineering plastics? Lancellotti: Mexico exports the majority of production to the US, also in the form of processed plastic products, with reduced domestic consumption. In Brazil the situation is different as many large automotive companies are present in the country and therefore engineering plastics are consumed
  3. 3. locally. Exports of engineering plastics from Brazil represent just 10% of the total volume [of these resins] imported. BNamericas: Which markets are ripe for developing? Lancellotti: I would say Colombia is a market that could be developed in the coming years as they have competitive production costs and also the government provides support in terms of taxes. We are seeing some investments in production but mostly for exports as the local market is not that well developed at present. Colombia could be a good option for companies looking to access the Latin American market. BNamericas: Does Latin America import a lot of engineering plastics? Lancellotti: It depends on the product, for example PA is produced locally in Brazil and Argentina but POM is totally imported, while PBT is only produced in Mexico. More than 70% of consumption in the region is dependent on imports. BNamericas: How has the economic crisis impacted revenues in 2009? Lancellotti: From October 2008 to March 2009 demand for engineering plastics declined by about 30%, and most of it came from the automotive industry. Mexico's engineering plastics exports to the US decreased 50% during the first half of this year. Brazil's exports to Argentina reduced 45% during the first quarter. Despite the fact that the impact of the economic downturn has been smoothed in Latin America compared to the situation in the US, market participants have faced sales decreases of about 40% in the first quarter of 2009. With the changes in the supply-demand balance, end-users are pressuring plastics manufacturers to reduce prices. This means that market participants are likely to have to be profitable under a new demand baseline. However, it is important to highlight that multinationals such as Rhodia, Basf and DuPont are focusing on developing in Latin America, and looking at diversifying their product offering away from the automotive industry and investing in developing alternatives, for example, Rhodia is developing different ranges of PAs. This is essential if companies and the industry want to maintain economic sustainability. Companies are also focusing on the end-user needs and seeking higher value niches as well as marketing. Frost & Sullivan predicts that the market for engineering plastics will grow at a rate of 0.5–1.5 % in 2009. BNamericas: Are "green" plastics employed in the engineering plastics field? Lancellotti: Green plastics are much more employed for commodity plastics in Latin America, such as PE [polyethylene], since these resins have a larger production volume. For engineering plastics, the green alternatives, besides being cost-effective, should also be committed to a performance as good as the oil-based plastics. Environmental concerns are major trends in the engineering plastics sector and the Latin American regulatory framework is moving toward this trend. Companies are developing biopolymers and recyclable engineering plastics (as Rhodia with PA) and are increasingly adopting sustainable production processes: energy efficiency, cleaner processes and water reuse. ABOUT THE COMPANY: Founded in 1961, Frost & Sullivan has 31 global offices with more than 1,700 industry consultants, market research analysts, technology analysts and economists. By Linus Hoggett