The economic downturn in the Latin American petrochemical industry has intensified recently, with analysts from various institutions noting that demand in the southern hemisphere has entered its peak summer season, yet the region’s petrochemical sector remains under significant pressure. Continuous demand weakness over the past few quarters has worsened, with overall demand in Latin America showing no signs of recovery. Some leading petrochemical companies are under tremendous stress and exploring financial solutions, with a high likelihood of debt restructuring. While the situation for Brazilian petrochemical firms is deteriorating, Mexican companies are faring comparatively well thanks to a series of trade policies.
Victims of Global Oversupply From a global petrochemical trade perspective, Latin America is heavily reliant on imports for about 50% of its petrochemical product demand, making it a typical "price taker" region. As a result, it has suffered greatly during this prolonged downturn in the petrochemical industry. The oversupply situation in the Latin American market is expected to persist, prompting companies to generally reduce inventory levels, only procuring what is necessary for immediate needs.
The pressure faced by Latin American producers is particularly pronounced, as suppliers from North America, the Middle East, and Asia continue to deliver products to the region at low costs. This situation further erodes the already thin profit margins for local petrochemical producers, who are losing pricing power. Buyers are adopting cautious procurement strategies, avoiding stockpiling inventory amid unclear demand prospects and opting for "just-in-time" purchasing to maintain greater flexibility amid market fluctuations.
Difficulties for Brazilian Companies The ongoing downturn in the petrochemical sector has affected companies' ability to meet debt obligations. Despite the Brazilian government implementing high trade protection policies in the domestic market, leading petrochemical firm Braskem is experiencing ongoing financial deterioration due to low profits and diminishing cash reserves.
Braskem’s main products, including polyethylene (PE), polypropylene (PP), and polyvinyl chloride (PVC), are all facing global oversupply issues, leading to severe price impacts. As a bellwether for the Latin American petrochemical industry, Braskem's stock plummeted by double digits shortly after announcing the hiring of external advisors to explore financial solutions at the end of September. Investors and credit rating agencies widely interpret this move as an indication that Braskem will initiate debt restructuring. Concerns particularly surround its bonds maturing in 2026, leading S&P, Fitch, and Moody’s to lower its debt ratings. Compounding matters, Braskem’s polyethylene production subsidiary in Mexico, Braskem Idesa, is also expected to start a debt restructuring process.
In Brazil, styrene producer Unigel has, after two years of negotiations and wrestling with creditors, recently applied for judicial reorganization in the São Paulo Bankruptcy Court. Conversely, chlor-alkali producer Unipar is among the few bright spots, gradually improving its financial condition, bolstered by a substantial portion of its energy needs sourced from internal renewable resources, resulting in a healthier cost structure.
Debt Concerns in Mexico's Oil Sector As the second-largest economy in Latin America, Mexico's petrochemical producers currently have a more favorable financial position compared to their Brazilian counterparts, thanks to high trade protection policies that shield them from the impacts of global oversupply. However, challenges loom with Mexico’s state-owned oil giant, Pemex, bearing a staggering $100 billion in debt, struggling with poor performance and severely aging facilities.
The president of the Mexican Chemical Industry Association (Aniq) indicated that if Pemex can return to healthy operations, it might catalyze up to $50 billion in investments for the Mexican chemical industry. However, the current situation for Pemex shows no signs of improvement. Organizations like the International Energy Agency (IEA) predict that, due to Pemex's financial difficulties, Mexican crude oil production could drop to 1.3 million barrels per day by 2030.
In September, the Mexican government announced plans to significantly raise import tariffs on various chemical goods and polymers at the appropriate time, a move that may help local producers solidify market share and improve their financial conditions. This tariff increase also signals a gradual alignment of President Claudia Sheinbaum's trade policies with those of the United States.
A report released in early October by Brazilian investment bank BTG Pactual specifically highlighted potential opportunities for Mexico’s two major chemical producers, Alpek and Orbia. Analysts noted that although Alpek's primary markets (like PE and PET) remain sluggish, the decline in costs for crucial raw materials like ethylene glycol (MEG) and paraxylene (PX) supports its profitability. While the performance of Alpek’s plastics and chemicals division has been lackluster, its stock rose 13.1% in September, likely benefiting from trade-related measures promoted by the Sheinbaum administration and the introduction of a 2026 economic support plan. These measures include amending the General Import and Export Duties Act (LIGIE) with proposed tariff increases on 1,463 categories of products, providing the Mexican petrochemical industry some breathing room.