Argentina petchems to take time to feel benefits from cut to import tariffs

SAO PAULO (ICIS)–Argentina’s petrochemicals players are in a wait-and-see mode about the effects a cut to import tariffs announced this week could have in the market and whether it will lower prices which, for many materials, remain higher than global prices.

Earlier this week, the Argentinian cabinet said it would cut the so-called PAIS tax from 17.5% to 7.5% from 2 September.

Introduced in 2012, the PAIS acronym responds to the name Tax for an Inclusive and Solidary Argentina (Impuesto Para una Argentina Inclusiva y Solidaria) and was presented by the at the time left-leaning administration as a tax on purchases of foreign currency.

In practice, given that most imports are priced in dollars, the tax ended being practically an import tariff and contributed to Argentina becoming one of the most closed economies to trade in the world.

President Javier Milei, in office since December 2023, has promised to turn the system upside down and make the Argentinian economy a bastion of liberalism.

The cabinet’s intention is to end import tariffs altogether. The minister for the economy, Luis Caputo, has been quoted in the Argentinian press as saying the country should be “moving forward in the elimination of all export duties, a perverse tax that we do not like and hinders” Argentina’s economic progress.

PETROCHEMICALS MUST WAIT
This week, sources in Argentina, who have been reporting higher prices for several materials compared to the rest of the world for months, were sceptical of any quick effect from the cut to the PAIS tax.

Some estimated, however, that the lower rates could slash petrochemicals import prices, on average, by $200/tonne.

Most sources also mentioned the example of Dow, which is the sole polyethylene (PE) producer in Argentina and has greatly benefited from the closed economy up to now.

Petrochemicals and the wider industrial sectors, including construction, remain the hardest hit industries amid the country’s recession, which is trying to digest the ‘shock therapy’ being implemented by the government.

Consumers are squeezed and few can afford the luxury of even thinking about purchasing the higher-priced, petrochemicals-intensive durable goods, which are the ones which could revive the beleaguered chemicals industry.

Moreover, those with stocks of materials purchased in imports under the previous PAIS rates are unlikely to lower their prices until they sell them – that period could be a few weeks or a few months.

“Plastic sales remain weak because people think prices will go down with the tax reduction. But I am not convinced the reduction will be immediate and all at once. Prices could only come down once the new imports under the new regime come into force,” said one source at a large distributor.

“It will be slow process, over one or two months – we will have to see how petrochemicals producers react and whether they start lowering prices straight away or do it in phases.”

This source and others said Dow announced to its customers in Latin America prices increases of around $100/tonne for most materials, although that increase was not applied in Argentina, said the distribution source.

Dow is Argentina’s sole producer of polyethylene. It operates facilities at the Bahia Blanca petrochemicals hub, south of Buenos Aires.

According to ICIS Supply & Demand, it has the capacity to produce 730,000 tonnes/year of ethylene, 307,000 tonnes/year of high density polyethylene (HDPE), 329,000 tonnes/year of linear low density polyethylene (LLDPE), and 40,000 tonnes/year propylene.

As the sole PE producer in a country locked up to external trade, Dow has greatly benefited in the past two months. Sources reported earlier in the year the company was selling PE at $2,400/tonne, when global prices stood at around $1,200/tonne.

The price increase announced earlier in the year added more doubts to the company pricing strategy.

Dow had not responded to a request for comment at the time of writing.

The source at the large distributor added, “Dow’s $100/tonne increase was not implemented it in Argentina as prices remain higher than global prices.

“If the reduction in the PAIS tax brings a reduction of $200/tonne, for example, perhaps Dow first decides to raise prices by $100/tonne and then take the $200/tonne hit and see what the market’s reaction is. Right now, we do not know how it will play out.”

STAYING PUT
Another source at a petrochemicals distributor, with decades of experience behind him, described the largest recession it has seen in its career. In such an environment, he went on to say, prices should go down to prop up demand, at least, according to economy theory.

But Argentina, it added, has escaped economy theory often in past decades so nothing can be taken for granted.

The source even added that it was mulling whether to attend an industry event next week in Buenos Aires, just in case a business opportunity is lost while it attends the conference.

On 4 September, the Latin American Petrochemical and Chemical Association (APLA) is holding its annual conference on sustainability, which together with its logistics event and the annual event are the three highlights in the Latin American petrochemicals markets.

“There is a strong, very strong recession, and we have to be very attentive to each business that emerges in order to be on the edge of not losing the opportunity or do a bad sale,” said the source.

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Focus article by Jonathan Lopez