Argentina bracing for ‘very tough’ H1, but healthier growth could follow – Anastacio CEO

SAO PAULO (ICIS)–Argentina is to have a “very, very tough” first half of 2024 as President-elect Javier Milei implements a shock therapy for the beleaguered economy, but a healthier country should emerge from the trauma, said the CEO at Brazilian chemicals distributor Quimica Anastacio.

Jan Krueder added that the company is hoping to close an acquisition deal by the second half of 2024; the price tag for the transaction would be “lower than $50m” and it will be on Latin America’s Pacific coast, but not in Mexico, where the company already has two warehouses.

Krueder said a 25% overall fall in chemicals prices in 2023 will lead to a fall in Quimica Anastacio’s revenue of 8%, despite an increase of 21% in its sales volumes. In 2022, sales stood at Brazilian reais (R) 2.5bn ($508m) – a fall of 8% would mean 2023 sales are to stand at around R2.3bn.

According to Krueder, this will be the first fall in sales in the company’s history, adding that “our crystal ball” did not quite work, since the company was expecting a recovery in chemicals prices by the second half of 2023, which has not materialized.

RECOVERY DELAYED
“China has not recovered as strongly as we forecast and the downcycle is lasting longer than other downcycles in the past. Too much offer and low demand, coupled with the pandemic woes and two wars, are delaying the recovery,” said the CEO.

“Prices which we expected to be rising by the end of 2023 are still at lows. We don’t expect a meaningful recovery until the second half of 2024 or beginning of 2025.”

Quimica Anastacio is one of the largest chemical distributors in Brazil. The company employs 500 people globally and distributes around 1,200 chemicals and fertilizers for industrial and agricultural players.

The company has eight warehouses in Brazil, two in Mexico and one in Argentina. It has a trading arm headquartered in Panama – Anastacio Overseas – and sales offices in Nigeria and South Africa.

ARGENTINA HARDSHIP
Anastacio’s operations in Argentina were relatively healthy up until August, said the CEO, when uncertainty started kicking in, as the electoral period which culminated with far right and libertarian candidate Milei chosen as president in November started.

In August, open primaries were held for political parties to choose their presidential candidate, as per Argentina’s electoral law. In October, the first round of the presidential election took place, with voters also choosing members of parliament (MPs).

In November, Milei achieved a clear victory in the presidential election, but fears about potential shockwaves caused by some of his electoral promises – dollarization and dismantling the central bank, among others – quickly dissipated because Milei’s party does not command a majority in the Congress.

He will need to have allies in the center-right, who are unlikely to support his more radical measures but will be more inclined to support, for example, privatizations and, crucially, withdrawing subsidies that are distorting the market and discouraging investment, said Krueder.

“I think the previous Peronist-led economic model has completely failed. Argentina still applies heavy state intervention, subsidizing many sectors, and has created a maddening exchange rate system. Energy prices, for example, are close to zero: that discourages investment,” he said.

“It will be a hard start of 2024; the first half will be very, very tough. Exiting the subsidies model or depreciating the official peso exchange rate will cause hardship, but hopefully one step back allows for two steps forward afterwards. We are excited to see what a more open economy in Argentina will bring.”

Krueder added that since September, Anastacio’s sales have fallen by 70% in Argentina. Such a turn of fortunes has prompted the company to change strategy, he added, and just try to save the day with full inventories and wait for the recovery.

Full inventories are a common theme in Argentina as the inflationary spiral – the annual rate of inflation stood at nearly 143% in October – prompted customers to fill up in expectation of higher prices.

Some petrochemicals players in Argentina have said Milei’s shock therapy and the consequent economic slowdown may last up to 12 months; others, more optimistic, thought it could be six months.

Krueder is of the latter opinion. An optimistic by nature, he said Brazil’s stabilization plans in the 1990s could serve now as an example for Argentina.

“During the 1980s and beginning of the 1990s Brazil’s inflation rate stood at more than 1,000% [it actually surpassed 6,000% at some point] but the administration did its homework under [former economy minister and later president] Fernando Henrique Cardoso and the economy stabilized,” said Krueder.

“Argentina could have a nice example there of how to come out of the current situation.”

ACQUISITION COMING ALONG – SLOWLY
In a previous interview with ICIS, Krueder had said Quimica Anastacio was evaluating an acquisition on Latin America’s Pacific coast but declined to give more details.

The company continues to look at an acquisition to expand in the region, with the CEO disclosing now there are already targets to be acquired.

“We are evaluating three companies. We are doing the cross-mapping of strengths and weaknesses and doing financials analysis. We are not in a hurry as we are focusing now efforts in Mexico, where we started operations in 2022, and Argentina,” said Krueder.

Excluding Mexico, other countries on the Pacific coast include Chile, Peru, Ecuador, or Colombia, among other smaller countries.

“We expect this acquisition to happen in the second half of 2024. It will be a small or medium company, with a price tag lower than $50m, although one of the three companies we are analyzing would be slightly higher than that,” he concluded.

This interview took place in Sao Paulo on 29 November.

Front page picture: Anastacio’s warehouse in Valentin Alsina, in the greater Buenos Aires
Source: Quimica Anastacio

Interview article by Jonathan Lopez