Expandable polystyrene (EPS) and polystyrene (PS)

HOUSTON (ICIS)–Recently released data from the US International Trade Commission shows imports of polyethylene terephthalate (PET) scrap have reached record highs, following a slight dip the previous quarter. This is in spite of recent efforts from the US Customs and Border Patrol (CBP) to shift imports of recycled polyethylene terephthalate (R-PET) flake material away from the plastic scrap harmonized schedule (HS) code and towards the PET HS code. Imports and exports of other types of plastic scrap remain relatively steady quarter on quarter (QoQ), though Canada and Mexico continue to fade as trade partners for plastic scrap. US remains a net importer of plastic scrap, largely on PET scrap imports PET scrap imported into US increased 22% QoQ YTD PET scrap exports to Mexico surpass 2023 volumes IMPORTS SURGE, LARGELY DRIVEN BY PETQ3 2024 trade data from the US Census Bureau shows US imports of plastic scrap – noted by the HS code 3915 – have increased 12% QoQ quarter on quarter, and 11% year on year when comparing with Q3 2023. Plastic scrap imports include items such as used bottles, but also other forms of recycled feedstock such as purge, leftover pairings and also flake material. Imports totalled 129,137 tonnes in Q3, with PET making up 54% of that volume at 70,094 tonnes. This is the highest volume of PET scrap ever imported in a single quarter. Year to date (YTD) volume at 191,738 tonnes remains just shy of the 2023 total amount, 204,278. Demand for R-PET flake was solid throughout Q3, especially as ocean freight rates began to normalize from late spring highs. Moreover, the Q3 typically is the peak in bottled beverage demand, the largest end market for US R-PET resin. At this same time, market players noted that domestic PET bottle bale feedstocks were surprisingly limited in availability, adding to the increased interest in supplementary imported flake feedstocks for recyclers. Though this data could be impacted in the near future due to recent efforts from US Customs who have directed several market players to use the virgin PET HS code, 3907, when importing flake. Market players have traditionally used the plastic scrap code as it is a duty free item, whereas the PET code carries a 6.5% duty, unless the country of origin has a free trade agreement with the US. The top countries who have sent PET scrap to the US include Canada, Thailand and Japan, respectively. While Canada makes up 24% of PET scrap imports alone, of the top 10 origin countries, those based in Asia make up 44% of all PET scrap import volumes, followed by those in the Latin American region at 15%. Market participants confirm they have seen a notable rise in imported R-PET activity from Asia and Latin America, particularly due to their cost-competitive position when it comes to feedstock, labor and facility costs related to R-PET. As more imports from Asian and Latin American countries continue to increase, Canada and Mexico could both see a reversal of their previous growth trend on total scrap exports to the US. Imports of all other subcategories of plastic scrap, including polyethylene (PE), polystyrene (PS), and polyvinylchloride (PVC) were relatively steady. PE scrap imports made up 12% of Q3 plastic scrap imports, driven by shipments from Canada at 68% of the YTD volume, followed by Mexico at 17% of the YTD volume. Germany surprisingly has increased PE scrap exports to the US fourfold, though the total volume remains small, at 1,210 tonnes YTD. YTD, the US remains a net importer of plastic scrap. MEXICO REMAINS KEY BUYER OF US PET BALES Though exports of PET scrap, largely in the form of bales, fell QoQ tonnes, YTD volumes have already surpassed that of 2023. Mexico in particular continues to be a key end market for US bale material, making up 59% of the 18,362 tonnes of PET scrap exports. While the US has always exported a portion of domestic PET bale material to other countries, exports to Mexico have surged over the last year. This growing trade relationship is largely attributed to new capacity in Mexico, paired with strong local demand which has elevated local bale prices. As a result, Mexican recyclers have been purchasing US PET bales as a lower cost option with higher availability. YTD exports of PET scrap to Mexico are already 3,333 tonnes above 2023 total PET scrap volumes. Exports of US bales to Mexico, particularly from the Southern areas of the US such as Texas and parts of California, continue to challenge domestic recyclers, who struggle to secure adequate volumes of bale feedstock. Furthermore, as export demand continues put upwards pressure on bale pricing, local recyclers find themselves stuck between rising feedstock costs and very competitive import virgin and recycled pricing, thus unable to pass along those increased costs. PET scrap exports to Malaysia have also surpassed 2023 volumes, at present by over 2,400 tonnes. On the other hand, volumes to Germany are now 2,966 tonnes short of 2023, showing the shift from European demand to Asian and Mexican demand. Overall, exports of other types of plastic scrap continue to slow, following the Chinese National Sword and Basel Convention adoption several years ago. Total plastic scrap exports down QoQ but similar to levels seen this time last year. Canada and Mexico receive 56% of US plastic scrap exports, followed by several Asian countries including Malaysia, India, Vietnam and Indonesia which in total 28% of exports. PE continues to be a leading polymer type for US plastic scrap exports, coming in at 32,519 tonnes this quarter, roughly 32%. Insight by Emily Friedman

11-Nov-2024

SINGAPORE (ICIS)–Shares of petrochemical companies in Asia tumbled on Monday as China’s much-awaited stimulus measures failed to impress markets, while the US is likely to put up more trade barriers against the Asian giant following the re-election of Donald Trump as president. Asian equities defy Wall Street’s 8 Nov gains; oil prices fall China Oct consumer inflation at 0.3% compared with 0.4% in Sept China central bank cuts yuan reference rate At 06:53 GMT, crude futures were down a few cents, with Brent crude down 6 cents at $73.93/barrel, and US crude down 5 cents at $70.33/barrel. At 04:00 GMT, Mitsui Chemicals was down close to 2% and Sumitomo Chemical fell by almost 2% in Tokyo, while the benchmark Nikkei 225 was down by 0.39% at 39,347.79. In Seoul, LG Chem was rangebound, with South Korea’s KOSPI Index slumping by more than 1%. In Hong Kong, PetroChina was down more than 4% as the Hang Seng Index slipped by 2.2% to 20,270.77. In Kuala Lumpur, PETRONAS Chemicals Group (PCG) slumped by nearly 5% while the stock market index dipped by 0.3%. On 8 November, US stocks rallied after Trump’s re-election as market players expect corporate tax cuts, deregulation and larger fiscal deficits under his administration starting 2025. The S&P 500 rose by 0.4% to 5,995.54 on 8 November, while the Dow Jones Industrial Average was up by 0.59%, and the Nasdaq Composite closed 0.10% higher. THE TARIFF ISSUE Threats of potential tariffs of 20% on all imported goods and a rate of 60% or more on Chinese are worrying investors in Asia. “The spectre of tariffs [is] likely to lead to somewhat lower global growth, higher US inflation, possibly fewer Fed[eral Reserve interest] rate cuts, stronger USD [US dollar], higher bond yields amid a general rise in geopolitical and trade tensions,” Japan-based Nomura Global Markets Research said in a note on 10 November. However, Nomura emphasized that the timing of Trump’s policy as well as tariffs are still “major unknowns”, and that milder policy action is likely to offset initial price-action. The effects of potential tariffs have already led to frontloading exports to the US in October, a trend likely to continue into H1 2025. Chinese exports in October were up nearly 13% year on year amid a rush to ship goods ahead of any trade protectionist move by the US once Trump is back in power next year. On Monday, the People’s Bank of China (PBOC) adjusted down its daily reference rate at yuan (CNY) 7.1786 to the US dollar, a decline not seen since late 2023. A weaker yuan would help boost competitiveness of Chinese exports amid threats of tariffs. CHINA MEASURES FAIL TO LIFT DOWNBEAT MOOD Investor sentiment was dampened by a weaker-than-expected stimulus measures announced by China following the National People's Congress (NPC) meeting last week. The country’s top legislative body approved a bill on raising ceilings of local government debts, while allowing local governments to issue yuan (CNY) 6 trillion ($838 billion) of new bonds to swap with off-balance sheet debts, China finance minister Lan Fo’an had said on 8 November. Lackluster growth despite a stimulus package introduced in late September and a lack of further measures to encourage spending continues to weigh on sentiment. China’s consumer prices in October inched up by 0.3% year on year, slowing from the 0.4% growth in the previous month. The focus will now be on Singles’ Day, China’s equivalent of Black Friday in the US on Monday, where value-for-money purchases and online shopping will hopefully bolster overall consumption. “We suspect that given the shift toward value-for-money purchases and online shopping, we’ll continue to see solid growth numbers from the event that should comfortably outpace the overall consumption growth momentum,” Dutch-based bank ING said in a note on 7 November. Focus article by Jonathan Yee

11-Nov-2024

SAO PAULO (ICIS)–Brazil's central bank monetary policy committee (Copom) voted unanimously late on Wednesday to hike the main interest rate benchmark, the Selic, by 50 basis points to 11.25%, to fend off rising inflation and a depreciating Brazilian real. Central bank urges government to put fiscal house in order H1 October inflation data reveals that upward trend continues Despite high borrowing costs, car sales at decade-high in October The 50 basis point increase is a double-down on the first 25 basis point increase in September which put an end to the monetary policy easing which started in August 2023 after a post-inflation crisis. Copom did not mention the market fallout which followed US Republican candidate Donald Trump’s victory in the presidential election, as global investors are wary about radical changes in US trade policy via higher import tariffs, among others. Instead, Copom focused on the healthy domestic economy and strong labor market which has put upward pressure on prices. After a small fall in August, the annual rate of inflation ticked higher in September – an upward trend that started May – to stand at 4.4%. Indicators for H1 October showed inflation ticking up further to 4.5%. The Banco Central do Brasil's (BCB) own inflation expectations reflect this trend, with inflation expected to end this year at 4.6% before falling to 4.0% in 2025. The BCB’s mandate is to keep inflation at around 3%. “The scenario remains marked by resilient economic activity, labor market pressures, positive output gap, an increase in the inflation projections, and deanchored expectations, which requires a more contractionary monetary policy,” said Copom. “[Copom] judges that this decision [increase in the Selic] is consistent with the strategy for inflation convergence to a level around its target throughout the relevant horizon for monetary policy. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.” Petrochemical-intensive industrial companies have repeatedly said high interest rates have harmed sales as consumers think twice before purchasing durable goods on credit due to high borrowing costs. One vocal opponent to high rates is automotive trade group Anfavea, although its own figures this week showed sales riding at a high not seen since 2014, regardless of high borrowing costs. The automotive industry is a major global consumer of petrochemicals, which make up more than one-third of the raw material costs of an average vehicle, driving demand for chemicals such polypropylene (PP), nylon, polystyrene (PS), styrene butadiene rubber (SBR), polyurethane (PU), methyl methacrylate (MMA) and polymethyl methacrylate (PMMA), among others. Meanwhile, Brazilian president Lula's cabinet is looking to strengthen the country's industrial sectors to fulfil his Workers Party (PT) electoral promise to create more and better paid industrial jobs. As a result, Lula and several of his  officials have repeatedly and publicly criticized the BCB for its interest rates policy. Meanwhile, central bank governor Roberto Campos Neto, appointed by the previous center-right Jair Bolsonaro administration, will end his term in December, when Lula appointed Gabriel Galipolo will succeed him. It is a move that has put some investors on alert due to his closeness to Lula, as he may prioritize the cabinet's demands instead of the bank's inflation target, its main mandate. But as global markets increasingly look at Brazil, Galipolo has fallen in line and also voted to increase rates in the last two Copom meetings. CABINET URGED TO END DEFICITThe Brazilian cabinet, presided over by Luiz Inacio Lula da Silva, was expected to run a fiscal deficit this year in an attempt to expand public services without increasing taxes. Investors and analysts have been piling pressure on the government by punishing the Brazilian real (R), which has depreciated sharply in the past few months against the US dollar, making dollar-denominated imports into Brazil more expensive and ultimately filtering down in the form of higher inflation. At the start of 2024, the real was trading at $1:4.85. But the exchange rate stood at $1:5.69 on Wednesday, a depreciation of nearly 15%. On Wednesday, Copom joined the chorus of voices asking for stricter fiscal policy, arguing that to stop the real losing ground it is necessary a “credible fiscal policy committed to debt sustainability, with the presentation and execution of structural measures” in the public accounts. The Brazilian cabinet is reportedly working against the clock this week on those measures, and Finance Minister Fernando Haddad even cancelled an official trip to Europe this week to focus on this. “The perception of agents [in the market] about the fiscal scenario has significantly impacted asset prices and expectations, especially the risk premium and the exchange rate. [A credible fiscal policy] will contribute to the anchoring of inflation expectations and to the reduction in the risk premia of financial assets, therefore impacting monetary policy.” Analysts at Capital Economics on Wednesday also highlighted the diplomatic but very clear request from the central bank to the government – without stricter fiscal policies aiming to reduce the deficit, investors will continue making the central bank’s work on inflation harder as they bet against Brazilian assets, including its currency. “[The hike] has more to do with the domestic macro backdrop and shoring up monetary policy credibility than a response to the market fallout following Trump’s victory … [Copom’s] Concerns will have only been amplified by recent data and developments, with the accompanying statement reiterating that ‘economic activity and labor market continues to exhibit strength’,” the analysts said. “Alongside all of this, Copom members are probably also feeling compelled to tighten policy in order to shore up their credibility amid investor concerns about politicization of monetary policy. This strikes at an important point – the central bank is responding to Brazil-specific factors rather than the financial market fallout from Trump’s victory, especially given that the real is up by around 1% against the dollar today [6 November].” Capital Economics said Copom’s intention to raise rates further if necessary is likely to become a reality in coming months, expecting the Selic to rise further by 75bps more to reach 12% in early 2025. “That said, the risks are skewed to the upside, particularly if the government fails to soothe investors’ concerns about the fiscal position.” they concluded. Focus article by Jonathan Lopez 

07-Nov-2024

HOUSTON (ICIS)–Several ICIS market experts share insightful facts related to their respective plastics markets, amid conversations with industry professionals at PackExpo '24. Though each market comes with a host of uncertainties, the broader US plastic packaging industry continues to navigate mixed demand and various supply challenges in 2024 and beyond. Bottled beverage sector made up 15% of all US packaging revenue in 2023. US polyethylene terephthalate (PET) production to remain 3 billion lb short of domestic demand in 2025. US polystyrene (PS) production has been impacted by outages since July 2024. US polypropylene (PP) prices have been volatile, with price movements 11 out of the last 12 months. US polyethylene (PE) inventories are the highest they have been since May 2023. US recycled PET (R-PET) market facing onslaught of imports. 2Q2024 PET scrap import volumes were above 125 million lb. PackExpo runs through 7 November and is hosted in Chicago, Illinois.

06-Nov-2024

SAO PAULO (ICIS)–Brazil’s petrochemicals-intensive automotive sector posted in October its best sales since 2014 at nearly 265,000 units, the country’s trade group Anfavea said on Wednesday. Healthy sales at home propped up output, which stood at nearly 250,000 units during October and was also propped by overseas sales, with exports rising during the month, compared with September. Year-to-date in October, however, exports still register a negative reading of more than 7%, when compared with the same 10-month period of 2023, as key trading partners such as Argentina remain in financial trouble, reducing consumers’ purchases of Brazilian-manufactured vehicles. “Although this was the second-best month of the year in terms of production, we are still below the registrations, due to the high volume of imports,” said Anfavea’s president, Marcio de Lima, focusing on an issue – imports from China, specifically – which the trade group have been raising alarms for much of this year. In July, Anfavea said several producers with facilities in Brazil – most of them the traditional, established players – are pointing to an “uncontrolled” influx of cars manufactured overseas which are hitting domestic producers’ market share. China-produced vehicles, most of them electric or hybrid, are quickly gaining market share in Brazil and elsewhere in Latin America. Anfavea called on the government to establish tariffs as other jurisdictions – the US or the EU – have done on China-manufactured vehicles. “Another good news in October was the increase of 7,000 direct jobs in the last 12 months, with the potential to generate another 70,000 jobs in the automotive chain. This is the indicator that makes us happiest, as we have great responsibility for the approximately 1.2 million workers in the automotive sector,” said De Lima. Brazil automotive October September Change January-October 2024 January-October 2023 Change Production 249,200 230,000 8.3% 2,123,400 1,950,600 8.9% Sales 264,900 236,300 12.1% 2,124,000 1,847,500 15% Exports 43,500 41,600 4.6% 327,800 354,200 -7.4% The automotive industry is a major global consumer of petrochemicals, which make up more than one-third of the raw material costs of an average vehicle. The automotive sector drives demand for chemicals such as polypropylene (PP), along with nylon, polystyrene (PS), styrene butadiene rubber (SBR), polyurethane (PU), methyl methacrylate (MMA) and polymethyl methacrylate (PMMA).

06-Nov-2024

LONDON (ICIS)–Europe markets tumbled in afternoon trading on Wednesday, reversing earlier gains as the euro fell in value against the US dollar amid fears over the introduction of fresh tariff measures by the incoming US administration. A robust start to the day by Europe stock exchanges reversed course as trading continued. A speedy resolution to a US political fight that had been expected to be closer-fought and potentially take longer to be decided reassured investors, but a surging dollar and jitters over the potential for fresh duties on exports to Europe unsettled traders. Robust trading goosed stock valuations across Europe shortly after press called the election for Donald Trump, with bourses in Germany, France and the UK up 0.85%-1.15% That rally subsided over the course of the day as a surging dollar and tariff worries unsettled markets, with the value of the euro dropping 2 cents against the dollar, from $1.09:€1 on Tuesday evening to $1.07:€1 in afternoon trading on Wednesday. Germany’s DAX index was trading down 1.18% while France’s CAC 40 had shed 0.83% of its value and the UK FTSE 100 slumped 0.23% as of 16:13 GMT. Particularly hard-hit were German automaker stocks, with Volkswagen shares plunging 5.70%, Porsche down 4.54%, BMW plummeting 6.47% and Mercedes-Benz shares dropping 6.44% on fears of steeper tariffs on vehicle exports to the US. The new president-elect had spoken on the campaign trail of plans for additional import tariffs, particularly for China but also for Europe. Donald Trump has set out plans to impose tariffs of up to 20% on all external trading partners and 60% on products from China, which economics institute Ifo estimated could cost Germany-based businesses €33 billion per year if they are introduced. Germany-based chemicals trade body VCI on Wednesday stated that businesses in both Germany and the EU need to diversify trade flows along with improving international competitiveness, due to the prominence of the US as a destination. The US is Germany’s second-largest trading partner after the EU. “For firms, uncertainty over the US tariff regimes for their industry and the risk of retaliatory measures by policymakers elsewhere will clearly be a huge problem when forward planning,” said Oxford Economics director of global macro research Ben May. “This, combined with potentially higher borrowing costs, could be a strong disincentive to delay or cancel investment,” he added. US markets are substantially more bullish at present, with the Dow and Nasdaq trading up 3.15% and 2.02% as of 16:34. Canada exchanges booked more modest increases, while central and southern American exchanges fared worse, with the Brazil Stock Exchange Index and Mexico’s S&P/BMV IPC index trading down. (Clarification: recasts eighth paragraph)

06-Nov-2024

SAO PAULO (ICIS)–Brazil’s private sector posted in October the fastest rate of expansion since mid-2022, analysts at S&P Global said on Tuesday. S&P's composite PMI index stood in October at a very healthy 55.6 points, up from September’s 55.2 points. Any reading above 50.0 points shows economic expansion. S&P compiles the composite PMI index putting together the manufacturing and services indices, according to each's weight in the economy. Last week, S&P said Brazil’s petrochemicals-intensive manufacturing sectors had performed well in October thanks to a healthy order book, both in the domestic market as well as abroad, with export orders rising. This week, the analysts said the services sectors – which are predominant in the economy – had also posted healthy performance in October, with the index at 56.2 points, up from 55.8 points in September. COMPOSITE PMI“Stronger increases in both factory production and services activity fueled growth of Brazilian private sector output … The main determinant of growth was a substantial improvement in demand for goods and services. Aggregate sales increased at the quickest pace in 28 months, spurred by a faster increase in the service economy,” said S&P. “Less encouragingly, employment data showed the joint weakest rise in private sector jobs since October 2023. Manufacturers hired staff at the slowest pace for 10 months, while cost considerations at service providers led to a broad stagnation of recruitment efforts. Input costs at the composite level rose at the weakest rate in four months, reflecting a notable slowdown in the manufacturing industry.” BRAZIL MANUFACTURING PMI October September August July June May April March February January December 2023 November PMI index 52.9 53.2 50.4 54.0 52.5 52.1 55.9 53.6 54.1 52.8 48.4 49.4 Source: S&P Global

05-Nov-2024

SAO PAULO (ICIS)–Here are some of the stories from ICIS Latin America for the week ended on 1 November. Brazil’s chemicals trade deficit keeps rising; producers entrust recovery to higher tariffsBrazilian chemicals producers’ market share continued to be threatened in the January-September period, with the industry’s trade deficit rising to $36.2 billion, up 1% year on year, the country’s chemicals producers trade group Abiquim said this week. Brazil’s chemicals output up 2% in September, plastics and rubber up 6.5%Brazil’s chemicals output rose by 2% in September, year on year, although it fell compared with August by 2.7%, the country’s statistics office IBGE said on Friday. Brazil's manufacturing keeps momentum in October, export orders robustBrazil's petrochemicals-intensive manufacturing sectors continued expanding in October, the tenth consecutive month of growth, analysts at S&P Global said on Friday. Mexico’s manufacturing recovers slightly in October but poor demand keeps it contractionMexico's petrochemicals-intensive manufacturing sectors continued to contract in October, although it slightly improved its performance month on month, analysts at S&P Global said on Friday. Colombia’s manufacturing output booms in October, central bank cuts rates to 9.75%Colombia's petrochemicals-intensive manufacturing sectors made a decisive return to growth in October on the back of a healthy increase in new business, analysts at S&P Global said on Friday. Brazil’s chemical producer prices up nearly 11% in SeptemberBrazil’s chemicals producer prices rose in September by nearly 11%, year on year, as the sector recovers, the country’s statistics office IBGE said this week. Mexico’s GDP recovers strongly in Q3, more rate cuts dependent on US election – analystsMexico’s GDP grew by 1% in Q3, quarter on quarter, confirming the economy “pulled out of the slump” of the first half of the year, analysts said on Wednesday. Brazil's Braskem Q3 resin sales down 2% due to higher PE and PVC stocksResin sales in Braskem's domestic market dropped by 2% in Q3 year on year, mainly due to the higher levels of polyethylene (PE) and polyvinyl chloride (PVC) stocks in the transformation chain, the Brazilian petrochemicals major said on Wednesday in its quarterly production and sales report. Brazil Petrobras to continue advancing nitrogen project in Tres LagoasBrazil producer Petrobras announced that its board of directors has decided to continue implementing the nitrogen fertilizer unit (UFN-III), located in Tres Lagoas, Mato Grosso do Sul. PRICINGDomestic, international PE prices steady to lower on falling US export offersDomestic, international polyethylene (PE) prices were assessed as steady to lower across Latin American countries on the back of competitive offers from the US. Domestic PP prices fall in Colombia, Mexico on lower feedstocksDomestic polypropylene (PP) prices fell in Colombia and Mexico tracking lower feedstock costs. US October propylene contracts settled at a decrease on falling spot prices. Brazil hydrous ethanol sees small rise, anhydrous stays steadyPrices for hydrous ethanol saw a slight increase at the lower end of the range, with demand demonstrating stable sales in Q4. Chile and Colombia PET CFR prices decline amid Asia price reductionsChile and Colombia's CFR prices fell on the lower end of the range reflecting the recent price reduction in Asia.

04-Nov-2024

BARCELONA (ICIS)—The eurozone manufacturing economy is still contracting, albeit at a slightly slower pace, according to new purchasing manager indices (PMIs) which mark the longest downturn since data collection began in 1997. The HCOB Eurozone Manufacturing PMI for October rose to 46 from 45 the previous month, still well below the 50 threshold which separates expansion from contraction, according to S&P Global which compiles the monthly survey. Production volumes decreased in October for the nineteenth straight month while output was constrained by a further marked decline in new factory orders, leading workforce numbers to be reduced further. On a positive note, contractions in production, sales and employment eased, although business confidence slipped to a one-year low. The contractions remained sharp in Germany and France, the eurozone’s largest economies, weighing down the result. Moderate deterioration was seen in Italy and the Netherlands, although a renewed improvement at Irish factories was recorded. Greece continued to display resilience, with a Manufacturing PMI above the 50.0 mark for a twenty-first month running. The top performer was once again Spain, which posted its fastest improvement in industrial conditions since February 2022. Factory output continued to decrease across the euro area in October. Although the rate of contraction has cooled since September, it was broadly in line with the average seen over the current 19-month sequence of decline. Production lines were once again squeezed by a lack of incoming new work. Total new order inflows shrank at the start of Q4, although the extent of the fall was the softest since June. Eurozone manufacturers once again trimmed purchasing activity, as they have done every month since July 2022. Amid this sustained tapering of input buying, pre-production stocks shrank at a sharp rate. Nevertheless, surveyed firms reported delivery delays from suppliers for a second month running. Employment was cut further at the start of Q4. Despite easing, the rate of job shedding held close to September’s 49-month record. Another marked drop in staffing capacity came amid a further sharp fall in backlogged work and a deterioration in business confidence. Eurozone manufacturers’ growth expectations were at their weakest in a year. Manufacturing costs fell in October, with these being passed on to customers as charges for goods leaving the factory gate were discounted to the greatest extent in six months. Commenting on the PMI data, Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said, "There is one bit of good news in these numbers: the recession in the manufacturing sector did not deepen further in October. Production dropped at a slower pace than in the previous month, and new orders fell less sharply.” He added, "It is not encouraging that inventory drawdowns for purchased materials continue at an unusually high pace. The ongoing reduction in inventories is obviously related to the fact that companies purchased and stockpiled materials and intermediate goods at an unprecedented scale in 2021 and 2022.” The economist pointed out that sluggish global demand gives companies no reason to restock, which in turn weighs on the economy. "The environment in the industry remains deflationary. This is good news for the purchase departments, but it seems companies are forced to pass on the corresponding price reductions in full to their customers. This points to fierce competition… We assume that China plays an important role here.” Thumbnail photo: Shutterstock

04-Nov-2024

SAO PAULO (ICIS)–The financial week in Latin America ends with the confirmation that its two largest economies’ performance is taking diverging paths as Brazil's unexpected healthy growth brings to the fore overheating fears, while Mexico's slowdown is proving harsher than previously thought. Healthier-than-expected growth in Brazil occurs against the backdrop of a fast-slowing Mexican economy, where political woes at home and in the US, due to the upcoming presidential election, are taking a toll on output, expected by the IMF below 2% in both 2024 and 2025. This week, official figures in Mexico confirmed the slowdown in August, compared with July, with output in most subcategories, including petrochemicals-intensive sectors such construction, falling. Output was still up on a year-on-year basis. The latest IMF GDP growth forecasts published this week were another jag of cold water on Mexico’s new Administration led by Claudia Sheinbaum, with the Washington-based body expecting output to expand just by 1.5% in 2024, down from its previous forecast for 2.2% growth. The IMF added output would slow further in 2023, growing at 1.3%. See bottom table for data on the main Latin American economies' GDP growth and inflation forecasts. Meanwhile, Brazil’s economic performance has outpaced all forecasts in 2024, at home and abroad, and is likely to end up expanding by 3% or slightly more this year, which is causing unexpected price rises and a reversal of the monetary policy easing started a year ago: interest rates are due to stay higher for longer there. MEXICO WOES INCREASE AS US POLL NEARSA cynical observer of North American politics may say that the most important election for Mexico is not its own, which was held in June and returned to Parliament a historic supermajority for the center-left, statist Morena party of President Claudia Sheinbaum. The most important poll for Mexico, the argument goes, would be that of the US, Mexico’s main clients for around 80% of goods the country manufactures. The statement could ring true from 2025 onwards if Republican candidate Donald Trump is voted back into the White House, with promises to implement sweeping import tariffs hikes, including for Mexico and Canada, the two countries sharing the USMCA free trade zone with the US in North America. As opinion polls remain tight in the big Mexican neighbor, uncertainty south of the border increases, and business expansion plans are put on a wait-and-see mode. The peso (Ps) has weakened by nearly 15% against the dollar year to date, and it would be expected to take a direct hit on 6 November if the morning after the election Trump is voted back into the White House, according to analysts. On Friday, the peso was trading at $1:Ps19.90, a sharp depreciation from the $1:Ps16.97 exchange rate it started the year trading at. Despite the peso’s depreciating, making dollar-denominated imports more expensive for Mexican companies and households, the overall economic slowdown is continuing to cause a fall in inflation. This week, Mexico’s statistics office said the much-followed inflation figure for the first fortnight of October had continued falling, leaving still room for the central bank – known as Banxico – to lower interest rates in its upcoming monetary policy committee (MPC) meeting in November. The headline annual rate of inflation stood in the first half of October at 4.7%, practically flat month on month, with the breakdown of the data showing non-core inflation fell to 9.7% year on year, while core inflation – which excludes more volatile prices for food and energy – was broadly unchanged at 3.9%, year on year. However, 5 November could be a before-and-after day for Mexico’s economy, with its currency the first to react to a potential Trump return to the White House. “The fall in Mexican core services inflation in the first half of October in principle gives Banxico space to press ahead with another 25bp [basis points] rate cut next month, but much will hinge on the outcome of the US election,” said analysts at Capital Economics this week. Mexico’s main interest rate benchmark was set in September at 10.50%. “An abrupt move down in the peso could put the easing cycle on pause … The outcome of the US election may well change the outlook for monetary policy in Mexico, especially if a Trump victory leads to a sharp sell-off in the peso. This would probably prompt Banxico to pause (or even reverse) its easing cycle.” Adding to the doom and gloom, US credit rating agency Fitch said on Friday that, as well as changes to trade policy, a Trump Administration could also have negative implications for Mexicans living in the US and the remittances they send home, which are a key income source for millions of Mexicans to make ends meet. “Central American countries in particular will be highly vulnerable to policy changes as their economies rely heavily on remittances … Immigration tightening and a more confrontational posture from the US towards Mexico and Central American countries could emerge should former president Donald Trump be re-elected,” said Fitch. “While implementation remains uncertain, his administration has increasingly indicated a willingness to significantly restrict border crossings and materially increase deportations of undocumented migrants." Remittances do matter, especially for smaller Central American countries. According to Fitch’s calculations, remittances in El Salvador and Nicaragua account for more than 30% of their GDP. In Mexico, remittances’ weight has risen from 2% in 2014 to the current 3.5%. Due to its large economy, the size of Mexicans’ remittances stood in 2023 at just over $63 billion – a figure larger than several smaller Latin American countries’ annual output. Fitch added that a Democratic victory in the election would mean policy continuity, not least because candidate Kamala Harris and Vice President has overseen immigration policy in the past four years. However, Democratic proposals show how the immigration debate has tilted towards the right, with some proposed restrictions unthinkable just a few years back. “The administration has voiced the intention to push for a bipartisan law that failed to pass in 2024 after Republican objection. The bill aims to close loopholes in the asylum process, give the president greater authority to shut the border when crossings are high, and limit immigration parole, which allows migrants to temporarily enter the US,” said Fitch. BRAZIL BOOM HAS UNWANTED SIDE EFFECTSAs previously analyzed in this article earlier in October, Brazil’s economy has beaten the odds in 2024, with its GDP expected to expand by more than 50% than most forecasts said at the beginning of the year – from below 2% to potentially slightly above 3%. This success is coming accompanied by a series of challenges, not least inflation and interest rates, which remain high. That fact has made Latin America’s largest economy to reverse course on easing monetary policy, on fears that lower borrowing costs would be set to spur already healthy consumption and feed inflation higher. The president of the Banco Central do Brasil (BCB), Roberto Campos Neto, said earlier this week inflation risks remained skewed to the upside. His colleague at the central bank’s board in charge of international affairs, Paulo Picchetti, reiterated the bank’s commitment to continue bringing inflation down, even if that implied making consumption more expensive via higher borrowing costs. "We chose to be completely data-dependent [on next moves], with a clear commitment to do what is necessary in terms of monetary policy to make inflation converge to the target," said Piccheti, quoted by news agency Reuters. Brazil’s central bank has the mandate to keep price rises at around 3%. Brazil’s data for the H1 October inflation continued showing price rises widening, compared with September, with the annualized rate at 4.5%, up from 4.1%. “A lot of the rise can be pinned on a further rebound in food and electricity inflation [caused mostly by extreme weather events, with a severe drought hitting the country in August and September]. Core services inflation dropped which, on the face of it, is encouraging,” said Capital Economics. “But that was driven by volatile items, such as airfares. We estimate that the central bank’s measure of underlying core services inflation, which strips out such items, ticked up last month. Taken together with comments from BCB policymakers warning about strong services inflation and unanchored inflation expectations, a step up in the pace of rate hikes from 25bp to 50bp is looking increasing likely.” Brazil’s main interest rate benchmark, the Selic, currently stands at 10.75%. IMF forecasts (in % change) GDP growth 2023 GDP growth forecast 2024 GDP 2025 growth forecast Inflation 2023 Inflation forecast 2024 Inflation forecast 2025 Brazil 2.9 3.0 2.2 4.6 4.3 3.6 Mexico 3.2 1.5 1.3 5.5 4.7 3.8 Argentina -1.6 -3.5 5.0 133.5 229.8 62.7 Colombia 0.6 1.6 2.5 11.7 6.7 4.5 Chile 0.2 2.5 2.4 7.6 3.9 4.2 Peru -0.6 3.0 2.6 6.3 2.5 1.9 Ecuador 2.4 0.3 1.2 2.2 1.9 2.2 Venezuela 4.0 3.0 3.0 337.5 59.6 71.7 Bolivia 3.1 1.6 2.2 2.6 4.3 4.2 Paraguay 4.7 3.8 3.8 4.6 3.8 4.0 Uruguay 0.4 3.2 3.0 5.9 4.9 5.4 Latin America and the Caribbean 2.2 2.1 2.5 14.8 16.8 8.5 Focus article by Jonathan Lopez

25-Oct-2024