A Global Business Reports publication, presented with IHS Chemical Week

Argentine Chemicals Industry

This research has been conducted by Amanda Lapadat and Vanessa Acuna of Global Business Reports. For more information, contact [email protected] or follow us on Twitter: @GBReports

The chemical sector is an inte- findings: “Our forecast shows that the Ingenuıty and gral part of Argentina’s economy, with chemical industry in Argentina has above average growth rates in compari- the opportunity to grow 100% over the adversıty son to other sectors, at 10.5% average next 10 years under ideal growth scenar- annual growth from 2007 to 2011, making ios. In general, all chemical producers it the most dynamic sector in the coun- have good growth potential in the local Argentina’s major growth occurred try’s economy. market as the economy is growing at 8% from the 1880s to early 1900s In 2010, the sale of chemical per year and the demand for chemicals is exporting livestock and grains, products in Argentina totaled $25.4 increasing.If we look at the petrochemi- billion, with the industry exporting cal sector, we have a limit posed by the which brought the rapid economic $5.85 billion worth of chemical prod- scarcity of raw materials, in particular expansion to become one of the ucts in the same year making it the sec- natural gas. The Department of Energy in ond largest market in South America the US has evaluated the impact of the wealthiest countries per capita. It has (see Figure 1). According to data from potential recovery to have the potential experienced various reversals since Argentina’s Chamber of the Chemical for 500 years of reserves for the coun- then, including decades of decline and and Petrochemical industries (CIQyP), try.The government is trying to deal with basic chemical substances and prod- this matter and there is good growth po- the occasional default. ucts contributed 24.8% of the industry’s tential if we are able to develop the shale production value, while agrochemicals gas resources in our country...in the next As things stand, Argentina’s prospects contributed 13.0%, specialty chemicals four to five years.” are relatively encouraging. Emerging contributed 15.1% and end-use chemi- Despite these seemingly positive countries such as Argentina are experi- cal products such as pharmaceuticals, findings from CIQyP, there is an air of encing growth in spite of the economic paints and coatings, cosmetics and uncertainty and concern that pervades crises occurring in Europe and beyond hygiene products contributed the remain- the industry. While the private players thanks mainly to high consumption ing 47.1%. have built solid foundations and dis- levels from growing middle classes and CIQyP recently conducted a study play impressive innovation and growth, investors looking to new markets for on the various segments of the chemi- in line with the rising GDP, a question growth opportunities that are no longer cal industry and evaluated the overall mark hangs over the government’s efforts as prevalent in mature markets. growth potential of the market over the to provide a competitive business envi- Political instability has undoubtedly next 10 years. Mr. Jose Maria Fumagalli, ronment. been a recurring factor in Argentina’s CIQyP’s Executive Director, explains the Several developments over the past fight for economic success. year have sparked inves- Successive government par- Figure 1: Argentine Chemical Industry: Value of production, tor concerns, such as the ties have favored short-term Exports, Imports and Trade Balance Government’s decision in objectives in line with elec- 30000 April to renationalize YPF tion periods over long-term through the expropriation 25000 economic sustainability. 25433,08634 of 51% of YPF shares from

s 20000

This has often resulted in llar Spain’s Repsol, underlining do f

o 15000 chronic inflation, substan- s the risk for multinational on

illi 10263,05264

m 10000 companies in the country. tial foreign debt, economic In 5849,303594 The nationalization not only stagnation and restrictions 5000 in foreign exchange. Nev- brought tension to Argen- 0 ertheless, over the last few tina and Spain’s historic years, Argentina has ex- -5000 -4413,749043 relations, but also brought

-10000 perienced high economic 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 condemnation from the Eu- growth averaging around a Value of Production Exports Imports Trade balance ropean parliament and high- 9% GDP increase in 2010 lighted the country’s strug- Source: CIQyP and 2011. gle for raw materials, with

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ment before any shipments are made. In The initial framework of this plan addition, the government is requiring that looks promising, but Argentina needs a any company importing goods imple- long-term industrial plan for transform- ments a trade balance, with the same value ing growth into development, and the of goods exported; a major challenge country’s current supply of raw materials for many companies that have never is too limited to support the full growth exported before. potential being demanded and the dras- tic restrictions on imports has stunted Industrial Plan 2020 the operations of many local companies that rely on the import of raw materials The “Strategic Industrial Plan 2020” and final goods, and are now forced to (Plan 2020), introduced by Ms. change their business model or cease op- Fernández in late 2011, outlines erations, which will impact the health of Jose Maria Fumagalli, Executive Director, CIQYP the objectives and federal steps to the country’s economy. be taken to transform the country’s The country’s potential to increase Argentina importing fuel for the first industrial sector and stimulate growth. raw material supply through investment time in 2010 since YPF was privatized Of the eleven industrial value chains in the oil and gas industry and the devel- in the early 1990s and Argentinean Presi- included in the report, chemicals, petro- opment of unconventional gas reserves dent, Cristina Fernández de Kirchner, chemicals and medicines are segments is promising in the long term, and pri- blaming Repsol for the deterioration of highlighted as leaders in the develop- vate companies’ proven track record for the reserves through lack of investment. ment of the country. overcoming difficult economic situations The government’s inflation rates have Plan 2020 is particularly focused time and time again thanks to creative come into question, with international on the need to build a strong domes- and adaptive thinking from their oppor- organizations stating Argentina’s official tic market (annual industrial growth of tunistic leaders, virtually guarantees the inflation figures between 5% and 11%, 5%) and will increase the country’s in- continued growth of the Argentinean are false and the country’s true infla- vestment in industry to 28%, from 24% chemical industry. Yet the extent of its tion rate is more than double the official of GDP. To achieve this, the govern- growth will be determined by the sensi- number. Unions throughout the country ment aims to double the country’s trade ble implementation of government poli- have been striking over wages, block- surplus, encourage local production, cies in support of growth and the nation’s ing access to some major industrial sites. bring GDP to $580.7 billion, and reduce ability to attract foreign investment. Finally, in late 2011 and early 2012 the the unemployment rate from 7.3% to 5% This report will take a closer look Argentinean government announced in- by 2020 through the creation of 1.5 mil- at the companies and individuals trans- creased import restrictions, which have lion jobs. The plan also aims to increase forming the Argentinean chemical in- impacted much of the chemical industry. exports by 49%, from $68.5 billion in dustry on the ground and identify this The new requirements force companies 2010 to $136 billion in 2020, while unique market’s opportunities for foreign to obtain licenses to import products imports will drop 45%, to $56.4 billion investors to become part of Argentina’s and prior approval from the govern- from $110.4 billion. growth story.

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has also been below adequate, as with PETROCHEMICALS gas, over the past three decades, however A need for raw materials with the reduction in oil production over the last 10 years has helped to mitigate the The total annual production of the drop in reserves, at least for the time being Petroquimica Cuyo’s General chemical and petrochemical industry of Manager, Jorge R. Sampietro, states: Argentina is estimated at 8 million Mt “Over recent years, Argentina’s natural in 2010, with 40% of this made up from gas supply during the winter season products of basic chemistry, 30% semi- has been insufficient to meet growing products and components, and 30% ready- total demand. Therefore, government made materials and finished products, authorities have decided to divert the (according to Instituto Petroquimico scarce resources to the residential sector, Argentino). From years 2006 to 2011, rather than to basic industries in order to domestic consumption of chemical satisfy domestic use. This decision has Daytime view of Petroquímica Cuyo’s C3 Splitter, products grew by 22%, and the export and had a severe impact on the petrochemical Lujan de Cuyo, Mendoza, Argentina. import of chemical products, including sector and has led to domestic demand basic products and semi- manufactured for petrochemicals far outweighing the Cuyo is facing under the current scenario: products, has increased 25% and 23% diminished local production levels.” The “The inland location of our plant site respectively. With these numbers, it is domestic demand for polypropylene is constitutes a very difficult problem easy to see the attractions of the industry. currently around 350,000 Mt/y, whilst the to overcome, because it limits our ability combined local producers output reaches to find new sources of raw materials Shortage of raw only 280,000 Mt/y. due to high transportation costs and Petroquimica Cuyo is the oldest logistical complexities involved. materials polypropylene producer of Argentina Therefore, our challenge today is Argentina has seen a dramatic reduction and the second largest producer in terms to improve our performance on a of gas reserves in over the last 30 years, of installed capacity. The main source continuous basis through the reduction of which is now threatening the country’s of basic feedstock (propylene) for its production costs, the development of new once thriving petrochemical industry. In 130,000 Mt/y capacity is the YPF Luján polypropylene grades to meet the ever- 1980, Argentina had 50 years of natural de Cuyo refinery that is located next to the growing plastics transformers demand and gas reserves, which after years of little company’s industrial plant in the province to improve our technical and commercial investment have now decreased to less of Mendoza. service to our customers.” than eight years, according to figures from The company’s strategic location When looking to the future, Sampietro IPA. Concerning oil, the reserves also are next to its main supplier, YPF, is ideal is optimistic. “We are confident that, in facing a reduction although not as quickly for operations when YPF’s production the foreseeable future, YPF will increase as for natural gas. Investment in the levels are maximized, Jorge R. Sampietro, the capacity of its Luján de Cuyo refinery, discovery and development of oil reserves explains the difficulties Petroquimica thus making available to our company

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larger amounts of propylene and ethylene impact polystyrenes as well as bioriented barrels of shale oil, ranking Argentina that will, in turn, enable us to build new polysterene in the only unit of its kind in number three in the world in terms of and larger polypropylene production Latin America. recoverable shale resources, behind China capacity” Argentina has historically been an oil and the US, according to BBC News and Petrobras, an integrated energy exporter, but in recent years the country US Energy Information Administration. company, and the second largest oil has had to turn to imports to meet the Through the oil and gas sector, the producer in Argentina after YPF, is also the rising internal demand and depleting downstream petrochemical sector will leading player in the styrene business in reserves. IPA estimates that for 2011 the likely get a second wind in coming years Argentina. Petrobras has been established petrochemical industry had a trade deficit if investment presents itself as is expected in Argentina since 1993, operating in of $2.1 billion. President Ms. Fernández by the leaders in the industry. However, oil and gas exploration and production. has publically blamed Repsol for the much of the petrochemical market in Petrobras Argentina is the only producer country’s current situation, accusing it Argentina has essentially been put on in the country of styrene monomer, of having drained YPF of financing since hold until the government determines a polystyrene, styrene butadiene synthetic acquiring a controlling stake in the 1990s clear plan for investment with its newly rubber (SBR) and Bioriented Polystyrene and not investing enough in Argentina reacquired YPF, which provides a majority (BOPS), with two petrochemical facilities to secure the country’s long term energy of the raw materials the petrochemical in Argentina, in San Lorenzo and Zárate. position. Despite the varying opinions on industry relies on. Until clear investments The industrial complex located in San who is to blame, it is clear that this lack of are made, the companies of Argentina’s Lorenzo, province of Santa Fe, extends investment has impacted not only the oil petrochemical sector are largely in the over and area of 150 hectares with a and gas sector in Argentina, but also the dark, without knowing what the future pier on the Parana River suitable for downstream activities which make up the holds or when their production plants can handling liquid cargo and has an installed country’s petrochemical market. once again reach full capacity. capacity of 160,000 Mt of styrene and On a promising note, Argentina has Carboclor is a petrochemical 58,000 Mt of elastomers (rubber SBR some of the world’s largest reserves of company that is majority owned by and NBR). The other facility located in shale oil and gas. In November 2011, YPF the state owned Uruguayan company, Zárate produces general purpose and high announced a major find of one billion ANCAP (Administración Nacional de

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Under the current circumstances, company’s product portfolio. “Our new trying to obtain and maintain a normal alkylate project will change the future of level of raw material provision is a Carboclor because the lack of premium constant challenge for Carboclor. The gasoline in the local market will bring company’s General Manager, Carlos D. many opportunities. Three years from de Juana, explains: “The production of now the project will be completed and oxygenated solvents is mainly dependent become a major focus for the company,” on the supply of raw materials, which says de Juana. often results in fluctuating production levels, and some years producing much Adapting to survive more output than others. Last year, Many operators, like Carboclor, have Argentina’s refineries ran at low levels become accustomed to only operating their due to different reasons such as general production facilities at partial capacity or Mr. Carlos D. de Juana, General Manager maintenance programs, some mechanical have had to rely on their creativity to find Carboclor delays, and lack of crude oil receptions, raw materials by other means. Dr. Alfredo which impacted the normal delivery of G. Friedlander, Executive Director of Combustibles Alcohol y Portland), located raw materials for more than 100 days, ‘Instituto Petroquimico Argentino’ (IPA) in Campana. Carboclor is the leader in the reducing Carboclor’s production level.” says: “The petrochemical companies in local market for oxygenated solvents as To secure the company’s long-term Argentina are well integrated and efficient. they are the only producer in Argentina. position, Carboclor is in the process of Argentina has a balanced supply of skilled Carboclor operates three production lines, building a new alkylation plant that will labor to support the chemical industry in producing oxygenated solvents, aliphatic produce alkylate (green octane enhancer) comparison to countries like Brazil; we and aromatic solvents and MTBE (octane that improves the quality of premium have the necessary workers to fulfill the enhancer), which is used to improve the gasolines. The project will amount needs of the industry. The only problems quality of gasoline; totaling production of to around $50 million spent over the in the industry currently are all related to around 152,000 Mt/y. next three years and will diversify the external factors. The main issues at the

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Gerardo D. Waisburg, CEO Grupo Piero (Petroquimica Rio Tercero) moment involve the raw materials and the control of money. Monetary issues usually involve companies owned by foreign investors, which have limited flexibility with their funds. Additionally, due to the dependency on petrol gas, any reduction in the production of gas dramatically affects the entire industry. Since the production of gas has been reduced in Argentina in the last couple of years, we have become more reliant on importing necessary raw materials.” This means that in the short term, companies are reliant on their creativity and resourcefulness to get them through this shortage, but in the long term, investments in exploration and the priorities of both government and business must change if the downstream market is to regain its footing. Dr. Friedlander explains: “Ideally, companies will either invest more in exploration for these raw materials or shift to using different materials in their production, like shale gas. There has not been much of a push for exploration previously because of the regulated markets in Argentina. This means that companies materials and have little incentive to do so.do notThese make alternatives much money exist, finding but it rawwill take some time to modify the habits of an entire industry.” Petroquimica Rio Tercero (PRIII) demonstrates the power of adaptation in the face of challenges. PRIII has managed to use technology and its resourcefulness to combat the

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shortage of raw materials in Argentina PRIII’s industrial complex is one excellent technological know-how and for petrochemicals into a reason for of the most vertically integrated TDI a long history of exporting crops and growing the business. PRIII’s main production facilities in the world, livestock. The sector will be a main product TDI is a basic compound for composed of six plants that generate source of growth for the country in the manufacturing of polyurethane intermediate inputs and other process the years to come if the government foam that is produced by the company chemicals. PRIII is largely focused on maintains the right tax incentives for in South America’s only TDI production the Mercosur region. “We are constantly large farmers that have the capability facility ever since its major competitor to export abroad. announced the closure of its TDI plant products and by-products, in an effort Historically, Argentina has innovating and finding new uses for our in Camacari, Brazil in April 2012. PRIII’s to fully utilize every resource of PRIII. been among the world leaders in plant is located in Cordoba, which is a We have a number of exciting projects the production and/or export of high technology and capital-intensive in the works that consolidate PRIII agricultural products. Argentina complex that has an installed capacity as a major player in the polyurethane produced over 8% of world agricultural of around 30,000 Mt/y. supply chain in Brazil over the next output between 2005-2007, making years,” said Waisburg. In addition to TDI, PRIII has Argentina the eighth-largest producer developed a chemical business Providing investment in production of and the twelfth largest exporter of leveraged on the by-products that raw materials is forthcoming, prospects agricultural commodities in the world for growth in Argentina’s petrochemical are a result of its vertically integrated (Food and Agriculture Organization sector look promising. Without an production process, which is either [FAO]). increase in raw materials, companies used internally as a raw materials for A recent report by Argentina’s cannot operate at full capacity and sustain products or sold to the domestic market. association for agribusiness, “La Cámara this trend. President of Grupo Piero, Gerardo D. de Sanidad Agropecuaria y Fertilizantes” Waisburg, explains: “The company’s (CASAFE) and KleffmanGroup Argentina, chemical business can continue shows that there has been a 22% growth producing while TDI is shut down AGROCHEMICALS in annual sales of agrochemicals in the for maintenance as a result of the Feeding the world country in 2011. The agrochemical installed hydrochloric acid synthesis sector has shown constant growth in plant. This production improvement Despite fears of stalled growth in output over the last decade, reaching is the starting point of the increased the immediate to short term for the total annual sales of over $2 billion in development of PRIII´s chemical petrochemical and other chemical 2011. The greatest rise in sales volume business, not only as a supplier of segments, the agrochemical segment was seen in herbicides (58%), from the raw material for TDI but also as an is expected to continue achieving a country’s strength in the production independent and separate chemical strong performance, riding the wave of of glyphosate, followed by insecticides business. The chemical business Argentina’s prominent role in feeding (17%) and fungicides (11%). Argentina’s now accounts for 40% of domestic the world’s growing population. largest exports include soybeans and revenues.” Argentina’s agriculture sector has derivatives, corn and wheat.

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Despite the country’s opportunities for growth, there are some serious concerns. Carlos Danilowicz, General Manager of Magan, subsidiary of Makhteshim Agan Industries says: “There are currently several challenges facing companies operating in the chemical industry here. Firstly, you need to implement different requirements imposed by local authorities, such as registrations, and follow policies related to microeconomics. Secondly, there is now a new government requirement; if you wish to import any good worth more than 100 Argentine Pesos, you need a special authorization from the government; a cumbersome process for us which can take up to a month. The government also requires all companies to have a trade balance, for every dollar of imported products a corresponding dollar of exported products must be attained. organization, capable of making faster decisions compared withTo compete other companies. in this environment, We generally we try try to to be have close a flexible to the what they really need”. finalMagan users isand in to the the process distribution of expanding system in orderits business to deliver in Argentina; working on current product lines, investing money in research, delivering new products to the market and considering new business opportunities and partnerships that will strengthen the business. The government subjects the import of all goods to a pre- registration and pre-approval regime, called the “Declaración Jurada Anticipada de Importación” since February 2012, in addition to product licenses required for hundreds of goods. measures in May 2012, on the grounds that the system is systematic,The European non-written Union filed and a nonformal –transparent. challenge toThe Argentina’s measures to industry in the EU and arguably to some Argentinean companiesdelay or block as well. goods at the border and inflict major losses Chemotecnica is a family owned business that began as a pharmaceutical company with an agrochemical base and whose main business is now in crop protection, with its facility sitting on 14 hectares and housing its own labs for research and development, formulations and performance of some synthesis processes. Chemotecnica synthesizes

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Recently the company developed like we saw in 2011, there are fewer produce 4 million liters of 2,4D amin a water-based formulation for crops to sell and the price grows for orfive ester molecules and aroundand has 8 the million capacity liters to cypermethrin, a more environmentally the end consumer to cover the farmer’s of E.C. formulations which are used friendly formulation without any costs, although less customers will then partially for Chemotecnica products solvents that is specially developed buy. Years ago, when we had a drought and partially for third parties. for use in areas with water quality like this one, prices did not change Alejandro A. Golfari, Chemotecnica’s problems. “This type of new green because the stock levels were very General Manager, discusses his home chemistry will be the future of crop high, but today the stock is very tight market: “Argentina is one of the most protection. We believe in providing so prices change quite drastically,” says competitive [agrochemical markets] in more than just control, the focus should Rizobacter President, Ricardo Yapur. the world, and between the Mercosur be on the prevention of disease and this nations, we will be feeding the world is in what we are working to develop in the future. Argentina is one of the for the market,” says Golfari. Biotechnology Weather is another incalculable Argentina is one of the biotechnology for agriculture. Despite a tax on our that can buffet the industry. After leaders in South America, and production,most efficient we still places have in been the able world to Argentina’s drought in 2009, which over the past decade the export of achieve competitiveness worldwide. many says was the worst faced in 100 biomedicines has grown steadily, The country does not have the ability to years, the sector saw another drought with exports in 2011 totaling more introduce new hectares to our planting in 2011 which caused the harvest than US$260 million according to areas so instead we must increase the to fall to $7.7 billion from $9 billion national government. Biotechnology amount produced per hectare, which is the year before (Financial Times). will undoubtedly be a major source both our challenge and key difference. “The agricultural sector is a sensitive of growth, with Argentina being one The only way for us to achieve this market year to year and at times it of the most advanced countries in is by putting more technology into the production of transgenic soybean the seed and investing in crop our clients experience a poor year in protection solutions.” production.can be difficult When to collectthere is payments a drought if several genes and types of resistance seeds, corn, sunflower and cotton with

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Uruguay, Venezuela, Ecuador, UK, China make great increases to the production and South Africa. The company has by hectare. We have access to the grown as a result of its investment in best technologies in the world for the research and development and through agrochemical market and a young, the use of strategic alliances. Ricardo educated generation that understands Yapur, Rizobacter President, explains: the importance of new technologies, “Through these alliances we share which will lead our role in the growth distribution, technology and know-how of global food demand and production,” to help grow the company into new declares Rizobacter’s President, markets. There are 18 million hectares Ricardo Yapur. of soya production in Argentina and 25 Crawford Keen and Company is a million hectares in Brazil that all use family company that began operating inoculants treatment”. in Argentina in 1970. It was one of the Rizobacter is investing 30% of Andres Kocmur, President CKC market to develop inoculants and today first companies in the Argentinean to drought, herbicides and insects in development to meet their goal of is known as Laboratorios CKC Argentina its annual profits in research and the region. introducing new inoculants to the (CKC). CKC signed an agreement with market each year. the ‘Instituto Nacional de Tecnología Rizobacter Argentina S.A. is Argentina is the third largest global Agropecuaria’ (INTA), to develop new a national leader in agricultural technologies at the Castelar innovation microbiology and produces various (GM) crops, with 16% of global park where CKC is the only private agrochemical product lines such as GMproducer crops cultivated of genetically in the modifiedcountry, company to date with operations inoculants, seed therapies, pest control according to government statistics. on-site. baits and forage seed coating. Today “The expectations of Argentinean CKC has a biological line of products one sixth of its sales comes from exports agriculture production are incredible to markets including the US, Bolivia, and the new biotechnologies here will years ago, CKC launched a bio-fertilizer, called “growth promoters” and five

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which has two growth-promoting products for the local market. UPL produce 10 times more than what we bacteria in the same sterile medium. also operates a unique laboratory consume in food and could potentially This promoter helps to create better in the country, which carries out produce up to 15 times more output. root and vegetative growth for the biotechnology research to develop The opportunity to export is fantastic; crop, and is sold under the product their own bio product line that is made the world is demanding what we are in Argentina, by Argentineans. producing. Our agricultural system is products are very delicate and contain Biotechnology is a growing trend in one of the most advanced worldwide, livename, bacteria, Rhizoflo which Premium. is controlled “These by Argentina for any ambitious company making Argentina internationally the INTA. With bacterial products you that has the technological ability or a competitive.” need to be careful with temperature, strategic partner to help them enter storage, transportation, and the storage this lucrative market. The agricultural term, as these are short-life products. industry is well developed, supported PHARMACEUTICALS The quality of a biological product by leading technologies, making it National giants pave the way depends a lot of the production quality. a natural market for biotechnology The support we have from INTA is products. “The environment is tough The Argentinean pharmaceutical really an important factor in this area sector experienced continual growth of our business,” says Andrés Kocmur, and this is why we are losing some due to local costs, inflation is increasing both in the domestic market and with President of CKC. competitiveness, but the opportunity is exports over the last decade, and will The soy inoculants market is still there in the long term. The use of continue to do so. With a strong base estimated to be worth around $40 technology is well accepted by farmers; in research and development, a solid million in Argentina. It is a very new technologies are introduced every local industry, growing public access competitive market, with more than to medicine and government support, 100 commercial brands in the country. from this. The farmers have to produce the pharmaceutical sector in Argentina year and the farmers are benefiting Today, CKC has a presence across all of more each year in terms of unit. Farmers is showing many signs of a promising Argentina and is exporting products reduce costs by producing more and that future, while other segments of the to Uruguay, Paraguay, and Bolivia and is why land productivity is increasing traditional chemical industry are faced shortly in Brazil. The company is now each year with the adoption of new with uncertainty and unstable growth looking into the possibility of selling its technologies,” says UPL’s Latin America prospects. products in Europe because of the size General Manager, Felipe MacLoughlin. Argentina’s pharmaceutical sector of their lands and the similarity of the “The agrochemicals market is growing has been tagged as one of nine strategic soil to Argentina. 10% a year thanks to the use of new sectors for attracting international Indian-based United Phosphorus technologies and due to increasing investment by the national government Limited (UPL) is a global generic prices in the international market. and is a key focus for domestic growth in crop protection, chemicals and seeds There are new challenges to face but, the government’s Industrial Plan 2020. company that operates two facilities in in the long-term, there is huge potential Regulatory improvement and sector Argentina that synthesize agrochemical to feed the world from Argentina. We growth have become a public priority

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as outlined in the Government’s plan and it is said that a gradual increase in regulatory requirements by ANMAT (the national administration body for drug, food and medical technology) will occur. According to the government’s Ministry of Foreign Affairs and International Trade, exports of pharmaceuticals have doubled their value between 2004 and 2010 (see Figure 2). There are over 200 pharmaceutical companies operating in Argentina, with local producers Microbiology laboratory. Photo courtesy of dominating the sector. According to Mr. Alberto Alvarez Saavedra, President, Gador Gador IMS - an international pharmaceutical CAEMe is the pioneer association auditing company, 60% of companies in manufacturing and Quality Control, of the pharmaceutical industry in Argentina’s pharmaceutical market while at the same time building one in Argentina and Latin America, are local, while the remaining 40% of the largest and highest paid sales representing research-based are international companies, with teams in Argentina, covering the entire operations in the country. This is country,” said Saavedra. and biotechnical pharmaceutical a key attribute to the country’s companies, as well as a group of local pharmaceutical industry, with the four Research & pharmaceutical companies which top companies being national players; share its values for quality research Roemmers, Bago, Gador, Elea (not in Development and patent drug development. a particular order). Ernesto Felicio, Like the rest of the Argentinean Executive President, Ernesto Felicio Executive President of Argentina’s economy, the pharmaceutical sector is says “Most of our companies invest in Chamber of Medicinal products, being impacted by the government’s the development and manufacturing of ‘Cámara Argentina de Especialidades resurgence of nationalism and the innovative, safe and effective medicines, Medicinales’ (CAEMe) says, a reason for industry’s attractiveness to foreign while fostering intellectual property this may be that “Local companies can investment is being questioned due to the rights as a tool to support innovation. take decisions faster than international country’s macroeconomic uncertainty CAEMe companies are deeply companies. In a changing environment and lack of effective intellectual committed to the development of the like ours, this represents a competitive property (IP) protection for “innovator” local industry, through the transfer advantage.” of technology, growing investment in A top national player, Gador, is patented products. The government’s known in the industry mainly for supportfirms that for arethe developingsector seems and to be selling still pharmaceutical products which prescription drugs, with an area of strongly focused on state-operated and clinical trials and exports of finished excellence in Central Nervous System A number of leading international (CNS) and cardiology drugs. “Now a which provides a threat to multinational laboratoriesgenerate foreign perform currency research inflows.” and majority of all drug sales in Argentina pharmaceuticallocally financed companies.domestic drug makers, development (R&D) in Argentina, are in the hands of national including Swiss based companies, rather than Figure 2: Argentinean pharmaceautical industry Exports multinationals which is Novartis. Argentina pharmaceutical firm atypical in the region,” 900 Medicines is considered a small explains Gador’s President, 750 Active Ingredients market for international Alberto Alvarez Saavedra. Total pharmaceutical players, 600 Gador has become one amounting for only 1% to of the top three players 450 2% of Novartis’ global sales. in Argentina after years 300 However, when looking at of dedicated investments (in US$ millions) 150 research and development, into the company. “Since Argentina is one of the inception, we have been key countries. Diego Ruiz, investing well over 50% 1991 1992199319941995199619971998199920002001200220032004 2005200620072008 20092010 Primary Care and BD&L of earnings back into the Source: Government of Argentina: Ministry of Foreign Affairs Head of Novartis Argentina company, predominately and International Trade explains: “This year we plan

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is part of their commercial strategy. which would result in lower prices for Not only must one be aggressive to consumers.” compete within this sector, but also the competition demands quality products Unique Distribution and not to infringe different patents,” explains Laboratorios Richmonds’ Model Argentina’s pharmaceutical industry Affairs, Elvira Zini. has also formulated a distribution Director of Technical & Scientific model not common in other markets, drugs: “When we launch a generic where the leading producers have productZini describes into the market, the benefits we can of decrease generic created distribution entities either the price that the health system pays on their own or through partnership for quality medication. With certain with other producers. This means that Diego Ruiz, Business Development Manager, generics, this cost is almost cut in half pharmaceutical companies under this Novartis after three years of launching, so with the same budget the health system can in their facilities. “Whether it works to devote around $27 million to research model do not store any finished goods cover more treatments. In terms of the well is arguable, but it is certainly very locally. We have a very strong reputation complex. It may not be the best system, for the high standards and good quality pharmaceutical market, generics could increase competence feasibility but up but it works in this market,” says of our research activities; the data from Novartis’ Ruiz. the clinical trials developed here are not to now prescription interchangeability is not installed in Argentina.” Both Novartis and Gador are only valid for local health authorities in partners in the ownership of the Argentina, but in most of the cases are Argentina’s patenting legislation and protection of intellectual property are distribution company Farmanet, part of the global registration dossiers along with Boehringer Ingleheim and submitted to other health authorities in still nascent and have substantial room central countries.” for improvement before multinational pharmaceutical companies have products of the companies in addition toCasasco. the products Farmanet of handlesaround 20 the other final A strong generics to the market and local companies have companies throughout Argentina. Around 18% of all Argentine products theconfidence incentive introducing to patent theirpatented own drugs drug market are distributed by Farmanet, with the Through the last decades, Argentina’s developments. According to CAEMe, remainder served by the distributors: lack of effective patent protection the legislation enabling patenting of for pharmaceuticals led to the pharmaceutical products went into full effect in October 2000. At present, development of a strong local market, Disprofarma, Rofina and GlobalFarm. led by Argentinean companies that there are very few patented products provide generic and branded generic offered in the local market. Over the Specialty and Fine products. The sector model has allowed past 12 years, Argentinean companies for the blossoming of local “generic” providing “branded generic” drugs Chemicals companies which have gained market have increased their share in the local experience and technological expertise market, over the dwindling presence of Adding value through technical and are now maturing into more expertise Argentina’s patenting law and ANMAT’s reach. focusmultinational on firms.heightened The introduction regulatory of The specialty chemicals market researchLaboratorios based firms Richmond with international is an requirements, show positive potential contributes 15% of Argentina’s example of a national pharmaceutical for the maturity of the local market. chemical industry (by production company that has based its strategy on Several local companies have managed value), which is the second after basic to register patents both in Argentina chemicals. In order to differentiate into the market, developing proprietary and abroad, and for now multinational themselves, the many companies dosageintroducing forms the and first licensee generic innovative versions producers have continued to that make up this sector are forced to products. supply innovative products and are provide technical services to customers The pharmaceutical industry is participating in tenders at national and for product development in an attempt extremely competitive in Argentina provincial levels. to add value over the competition. and there are many strong players CAEMe’s Ernesto Felicio highlights The highly competitive nature of this within a large pool of companies. the need for regulatory improvements: segment leaves companies relying on “When launching generics as we do, “Having a strong IP system – which trade barriers in order to protect the international companies do their best to is not the case – would enable the local market, bringing into question the development of a true generic market growth prospects for the future. limit our influence on the market, which 15 A Global Business Reports publication, presented with IHS Chemical Week

Ricardo M. Rabini, President, explains is known for its strong research and the importance of the company’s developmentArgentina’s finecapacity chemical and segmenthighly skilled labor force, but is facing tough a very versatile market, and having a competition on pricing, mainly from broaddiversified range customer of customer profile: groups “This gives is China and India. The segment has seen good stability if any market performs a reduction in the number of companies badly one year. Today, aeolic energy is a new market for Poliresinas San Luis entities. If the domestic specialty and that we have high expectations for, and has difficulty establishing new and are working to increase our survive globalization and the associated products in this niche market. The pressurefine chemical on pricing, markets the are private going and to government is now pushing the trucking public sectors must work to attract industry, which is an opportunity for us further investment and innovation in Dr. Ricardo M. Rabini, President, Poliresinas San Luis the country. for cold storage transportation, which isto developa market a lotthat of will fiberglass likely businessincrease local market and Poliresinas San Luis Resins more than the others.” is looking for partnerships to increase Poliresinas San Luis S.A. produced Competition from overseas markets our capacity, and further our position is a factor that Poliresinas San Luis in this growing market. We are always 1958. Over time the company shifted must consider to remain competitive, looking for new suppliers that are towardsits first batchthe ofproduction polyester of resins more in but Rabini insists it is less of an issue for compatible with our business and sophisticated resins and developed in his company, “China is very ambitious can add products to our portfolio that the composite market with different and looking to enter every foreign complement our current business kinds of unsaturated polyester resins market they can. Their products are offering and client base. “ in addition to producing gel coat competitive, low cost, and good quality A local importer of plastic resins, reinforcements, accelerators and in some segments but in the resin Plaswag, distributes a wide range of different products to produce the end market, the products we produce have imported and local resins, which include products. polyethylene and polypropylene. Poliresinas San Luis has a complete resin from China with 45 to 60 days The company’s Commercial Director, distribution network with its own transita limited time life whenso it isthe difficult gel’s life to importhas an Eduardo Cababie, describes Plaswag’s expiry of four months from the date of offer: “We deliver all our products with Rosario, Cordoba and Buenos Aires. production.” just-in-time delivery and we provide Thewarehouses company and distributes offices inproducts San Luis, in Rabini says the company is looking Argentina from Owens Corning Brazil to grow by means of partnership through good credit terms, which is and is also the exclusive distributor of and new suppliers: “There are many somethingour customers that with the financingindustry solutionsneeds. It Ashland Chemical’s line of resins. Dr. opportunities for advancement in the is not so easy to get credit from banks

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in Argentina, as small industries do not The modernization of resins is yet to have all the guarantees for banks to give scale to produce. For example, Indur be consolidated; traditional ones are them credit.” distributesthe company epoxy does resins not have and sufficientimports still very much used. The market has them for its clients in the local market. steadily grown a few percent every year, Ricardo Hirsch, Indur’s Vice but due to the situation in Argentina I theIn growing addition challenge to the companies difficulties are in President explains that the company think this year it will either level out or facingobtaining with financing, the government’s Cababie explains newly is close to reaching its production decrease a little.” introduced import licenses and trade capacity and if they want to increase balance requirements: “Plaswag’s output, a new facility will be needed, greatest challenge at the moment is the although there are no plans for a new Coatings government restrictions for importing plant in the immediate future. Hirsch Meranol is a family owned company some goods, but the country is growing says that a merger or acquisition is in operation since 1942, with the and there are big opportunities to be an option for further growth and production of coatings and the had. We are encouraging our small although the company is not looking for customers to export their materials an agreement right now, it would be hydroxide’ company in Argentina. first ‘aluminum sulfate in base of and we are helping them to make that open to the idea because as a family Meranol’s Vice President, Rodolfo happen. It is a new business opportunity Perez Wertheim, explains the daily for both our customers and for us.” growth potential. relevance of the company’s products: Indur is one of the leading business,In terms there of growth are financial and trends limits in to the its “Our products are located indirectly Argentinean resin companies, making resin market, Hirsch says: “The local in every house of the country but nobody synthetic products mainly for the market for resins has not changed very knows it. For instance, we are present coating industry. The main focus of much in terms of technology, although in the lights of your home, through Indur is on the production of synthetic there are some trends of company’s our sulfuric acid sold to energy resins, which makes up around 80% of moving towards water-based resins. producers or in the water from your its business, with the other 20% coming tap with aluminum sulfate supplied from the sale of imported goods, which and sales are increasing gradually. for water treatment, or the paint on We have developments in this field

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our production capacity through an investment of around $6 million for the construction of a new plant. We are now

the plant should be completed in next twoin the years. stage We of aredefining also planning the contract to grow and our iron oxide plant with an investment of $1.5 million,” says Perez. As the leader of a successful Argentinean family business, Perez offers some guidance on operating in this complex market: “In Argentina, it is important to know the difference between strategy and tactics. Every Lindalu Bartsch, VP Sales & Marketing, Croda Rodolfo Perez Wertheim, Vice President, Meranol Argentina. company must have a long-term the walls, which is produced with our a stronger market position through a iron oxide.” enough in each stage to change tactics more diverse product portfolio. strategy but you need to be flexible Meranol has grown almost 50 times several times to end at the same Croda is committed to use renewable its size in the last 15 years, which objective.” resources wherever reasonably was due to its investment decision to practicable and compares every new focus on sulfur for a basis of vertical Green Chemistry product launched against the ‘12 integration, which made the company Croda is a world leader in natural Principles of Green Chemistry’. Croda’s very self reliant and stable. Every based specialty chemicals, which are VP Sales & Marketing, Lindalú Bartsch, production line of Meranol has sulfur sold to virtually every type of industry. sees a trend in Argentina’s chemical In 1999, Croda took the decision sector that is moving to more natural vertical integration, it then includes products: “We see growing interest newas a raw first materials raw material, in the and process through to Buenos Aires and over the years, the from our customer’s day-by-day for produce a range of different products companyto establish has seen a subsidiary solid growth office in the in more sustainable products; however that compliment the business. market and has continually increased The company’s production capacity its size of operations each year. In products based on renewable sources is around 110,000 Mt/y of sulfuric acid 2006, Croda acquired Uniqema, part ofawareness raw materials about remains the low.“ benefits of and over 120,000 Mt/y of aluminum of the ICI group, which had over 20 Bartsch has a desire for challenges that sulfate. Meranol is currently developing years of operations in Argentina. This is a resounding trait of Argentinean a new plant, which will provide around transaction allowed for a successful leaders. She declares her thrill 20,000 Mt/y additional capacity for for overcoming obstacles: “I love sulfuric acid. “We have decided to grow size of its local operations and provided growth that significantly increased the difficult moments, because they are

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a challenge; it is in a crisis where you growth of the services industry is directly is likely that mergers and acquisitions will have more opportunities to build a related to the growth of production, so it play a major part in the future. better business and stronger contact is no wonder that many service providers “What Arubras is currently seeing in with your customers. If you approach a are now aligning their businesses to serve the market is that most of our customers crisis in the correct way, you have the the agrochemical and pharmaceutical are not increasing their production levels. potential to make the best relations by industries, where the most promising With all the controls coming from the facing your customers, answering their growth prospects lie. government, for instance in pricing, this concerns and being there with them puts constraints on the amount companies DISTRIBUTION are willing to invest in their business,” do that, then when the crisis passes by, The distribution business in Argentina says Arubras Director, Marcelo Knobel during these difficult times. If you can your relations are much stronger”. is made up of many small players, in Since 2008, Arubras has grown 10% addition to the services provided by per year, while the distribution market in major producers themselves. Independent Argentina is growing at around 7%. Most SERVICES distributors operate mainly with a focus of the company’s growth in suppliers has come from overseas; around 97% of Distribution, Industrial automation, on delivering imported products. Because of the great size of the country, many Arubras’ products are not produced in Certification regional distributers are set up, each Argentina. serving customers in a smaller portion Knobel discusses the impacts of The service industry in Argentina is well of the country to ensure quick service. the government’s import restrictions: established, with highly technical support Many distributors also offer services in “We used to have at least four months provided to clients in the chemical industry logistics, financing, technical advice and of inventory available, so when the from all fields including distribution, compound formulation. In Argentina’s government implemented the import industrial automation and equipment distribution market, success comes from restriction in February we had a large and certification. Virtually every service flexible management and customized inventory. We have tried to focus on the company in the country competes service in order to maintain clients in needs of our current clients, and ensure based on value added offerings in order a geographically large country, with a they receive the products required from to maintain clients and establish new medium sized market. our inventory. The challenge will be to business in a fiercely competitive market According to Arubras, a leading deliver the products on time. Previously, where customers commonly change distributor of commodities and specialty the lead-time of a product was 60 to 70 service providers over a price difference chemicals, the distribution market in days, yet today we are planning for the as small as a dollar. Argentina is worth $800 million per year. It lead-time closer to 120 days.” Service segments such as distribution comprises more than 120 distributors of all A delay in delivering products is are feeling the impacts of government sizes. The market is not very concentrated certainly a threat to any distribution restrictions on imports in addition to the in comparison to other countries such as business, but it is a reality Argentinean stalled petrochemicals market, which is Brazil; the top three players only have companies are adapting to. felt throughout the service sector. The around 25% of the market together, so it One of the largest distributors in

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Argentina, Henry Hirschen, was founded represent smaller companies who want to trucks. According to Ruben Marcello, in 1948 as an international trading and grow and need our support when it comes President: “Copsa does not have any export distribution company and today also to distribution and logistics services. activity because petrochemical products advises its customers in the field of Multinational companies also like to use here are more expensive than those international commerce, regulation and us as a service company and essentially found abroad due to our high internal tax customs, and logistic services. we represent producers and re-sellers structure, which makes our products less Henry Hirschen’s focus is on within the chemical industry.” competitive in the international market.” distributing imported goods not produced Copsa imports and distributes more In the domestic market Marcello in Argentina such as commodities and than 60 different chemical products explains that Copsa’s differentiation specialties, which are imported mainly in agreement with major national comes from its focused strategy in the from Brazil and China but also from petrochemical companies and has distribution and transportation of liquids: Europe, South East Asia, US and Mexico. represented international players in the “Copsa has the entire infrastructure in The company provides local financing to Argentinean chemical market for over place to serve this market segment and its customers to help them develop their 22 years. Copsa is also the main local our cylinder trucks are divided, to allow end product, because micro-financing distributor for aromatic and aliphatic us to deliver different liquids in one trip. is hard to come by in Argentina. Henry solvents, and the major distributor for Copsa has now incorporated solids into Hirschen is investing heavily in sectors YPF in Argentina. our operations and we are looking to enter such as mining, oil and gas and the In its chemical division, Copsa the specialty chemicals market,” explains agrochemical sector. distributes products through its own Carlos Melo, Copsa’s Chemical Division “Generally the distribution market transport and logistics terminal, which Manager, in Argentina is extremely competitive; include a wholly owned plant with a According to Melo, in Argentina, there everybody fights for prices in a big storage capacity of 1,200 tons of liquid are less distribution companies working country with a small population,” says the and dry inventory. Copsa’s terminal in the petrochemicals segment than there company’s President, Miguel Hirschen, also houses a fleet of 12 trucks, with the are that serve chemicals because of the adding: “We have the strength to represent transport capacity to deliver 300 Mt/day investment capacity required with the the big companies and the willingness to with flatbed, bulk and stainless steel tank petrochemical market, “Copsa began

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operating in petrochemicals so it was a need to be able to sell or distribute your natural move for us to expand into the stock rapidly. It is very common to have chemical segment, but it would be much customers demand products within more difficult for a distributor to move very tight timeframes and international from serving chemicals to petrochemicals companies sometimes have difficulties in the same way because of the equipment in accommodating their customers in this and experience required.” sense, but Safer brands itself as a service Safer Group initially began trading company with chemical capability and we as a food company, but today Safer has work for our customers by solving their a chemical division (Safer SACIF). problems in a fast, dynamic way.” Safer’s clients are from various sectors such as the automobile, agrochemical, INDUSTRIAL pharmaceutical, cosmetics, basic AUTOMATION, PROCESS chemicals and petroleum. The company Maximilian G. Kon, General Manager Yokogawa represents approximately 10 international and EQUIPMENT Argentina companies, including Wacker Chemie AG Argentina has long been known in Latin Japanese owned Yokogawa has been from Germany. In addition to distribution, America for its engineering services and in South America for over 35 years and Safer also develops products especially highly skilled labor force in related areas. took the decision to expand its business for the Argentinean market, such as Industrial automation firms experienced in Argentina, Chile, Colombia and special formulations for cars, textiles or high growth in the 1990’s when Peru around five years ago as a result paper applications. many investments were made in new Safer is looking to expand in South manufacturing facilities throughout the of the high growth seen in the region. America, and is currently looking to country in chemicals and petrochemicals. “Argentina is smaller than Brazil, which open offices in Uruguay and Paraguay, in Now, although new production means our business here is based on addition to current talks for a merger with investments are rare, the country has service and added value as a key focus a Chilean company. an experienced industrial automation, rather than sales volume. We have a CEO, Hugo Baquerin explains how the process and equipment segment that long history of operating in oil & gas, small company has survived and grown in serves the local market and exports its chemicals and petrochemicals. Argentina such a competitive market: “Safer has only technical knowledge to neighboring is the second largest industrial automation 40 employees but we have the know-how countries. When Argentina receives the market in South America.,” says and the mentality of a large international expected new investment in oil and gas Yokogawa Argentina’s General Manager, company. Safer’s relatively small structure and petrochemicals, this market will Maximillian G. Kon. permits us to be dynamic, which is very once again see growth in project based To be successful in Argentina, important in today’s chemical market. business, but until then the market must Yokogawa has adapted its way of business Having products in stock represents survive on business from maintenance and explains Kon, “To date the strategy we cost for any company and you therefore renovation based services. implemented in Argentina was to work

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on day-to-day business transactions rather than project business, International Standards Organization to report on the number or “turn key” business, which is Yokogawa’s strong suit in of ISO certificates issued globally. In Argentina, this business is other markets. This was a good way for us to enter an already still small in comparison to the rest of the world, although the established and competitive market. Today we are mastering the number of certified companies is growing. There are currently day-to-day business, which is a stable, high volume operation half a million companies formally registered to the government, that has allowed us to remain a strong competitor through the however there are only 8,000 companies certified, which leaves typical cycles of the market.” great potential for these services still. As Argentina’s chemical Yokogawa invests 10% of its revenue into research and industry matures and national companies expand their operations development and prides itself on a history of not buying or abroad, certifications will be an essential tool for competing on selling companies, and developing a majority of its products a global scale. internally. “In the future Argentina is going to receive strong IRAM, the Argentine Institute of Standardization and investments in energy as investors start to see the opportunities Certification is a private non-profit organization that was here. The country needs further investment in energy because the founded in 1935 as a central body to review and approve national demand for natural resources is higher than our current supply. standards in Argentina. IRAM is the oldest certification and Even with the difficult global economic situation, Argentina is standards organization in the country and works closely with the going through a transformation process and this will be a period government and international bodies such as the Pan American of positive change for the nation’s economy,” predicts Kon. Standards Commission (COPANT), International Organization for Standardization (ISO), the International Certification INSPECTION AND CERTIFICATION Network (IQNet) and the Worldwide Systems for Conformity Inspection and certification services are crucial for an industry Testing (IECEE) to bring standards to the country and represent that is so reliant on quality products, safety and management. Argentina in the formation of new standards, in addition to Several global firms and one national company, IRAM, serve providing certification services. Argentina’s chemical industry with product inspections, quality Bureau Veritas, a global player in conformity assessment management, safety and quality transportation certificates, and certification services has operations in Argentina, serving all aiming to improve the reliability and effectiveness of companies in the country’s chemical sector. Bureau Veritas’ the industry. The ISO survey is compiled each year by the Manager of System Certification Services, Gustavo Nudel explains: “We believe there is a lack of information on the benefits of ISO certification. Many small and medium companies believe that it is impossible to achieve certifications like these, as the bar is too high and that it is more suitable for large corporations, the certification process is three years with audits taking place annually or every six months. This is not expensive when comparing against such benefits that provide differentiation from the competition, prove commitment to quality and customer satisfaction, ensure that products and services effectively meet the customers and applicable statutory and regulatory requirements, measure progress towards continual improvement of business performance or improve the organizational performance.” In Argentina it is not mandatory to have such certifications and there are few incentives from the government to promote these certifications. With the government’s new requirements for companies to export, it is likely that more companies will seek certifications to gain credibility in the global market. “To export more overseas, companies have to prove their worth and the way to do this is through certification,” says Nudel. The Argentinean government has been introducing more regulations on industry, particularly from an environmental standpoint. Gustavo Nudel explains that today many petrochemical companies along the contaminated Riachuelo river, need to comply with new regulations to operate, “Chemicals are one of the most important industries of our business, as it is faced with many quality requirements, environmental issues and health and safety concerns which need to be attended to. certifications give [the industry] credibility, trust from the public and helps the company move forward,” said Gustavo Nudel.

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