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 INGENUITY 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 ADVERSITY 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 2 A Global Business Reports publication, presented with IHS Chemical Week 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. 3 A Global Business Reports publication, presented with IHS Chemical Week 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.