Economic Downturn Intensifies in Latin America's Petrochemical Industry, Multiple Global Petrochemical Companies Deeply Stuck in Debt Crisis

Recently, market analysts from multiple institutions have stated that despite the Southern Hemisphere entering the demand peak season of summer, the Latin American petrochemical industry continues to be under pressure. The persistent demand weakness over the past few quarters is still worsening, and overall demand in the Latin American region has not shown signs of improvement. Some leading petrochemical companies are under immense pressure and are exploring financial solutions, with debt restructuring being a likely option. Among them, the situation for Brazilian petrochemical companies is continuously deteriorating, but thanks to a series of trade policies, Mexican petrochemical companies are faring relatively well.

Latin America's petrochemical product demand relies on imports for about 50%, making it a typical "price taker" region. As a result, it has been severely impacted during this prolonged downturn in the petrochemical industry. The market oversupply situation in Latin America is expected to continue, with companies generally opting to deplete inventories and only purchase materials as needed.

Latin American petrochemical producers are under significant pressure, as suppliers from North America, the Middle East, and Asia continue to flood the Latin American market with products at low costs. This further erodes the already thin profit margins of local petrochemical producers and causes them to lose pricing power. Buyers, on the other hand, are maintaining a cautious purchasing strategy. Given the uncertain demand outlook, buyers are avoiding stockpiling inventory and prefer "just-in-time" purchasing, allowing for greater flexibility amid market fluctuations.

The prolonged downturn in the petrochemical industry has affected the ability of companies to fulfill their debt commitments. Despite the Brazilian government implementing high trade protection policies in the domestic market, the leading petrochemical company Braskem continues to experience deteriorating financial conditions due to sluggish profits and the continuous depletion of cash reserves.

The main products of Blasco Company include polyethylene (PE), polypropylene (PP), and polyvinyl chloride (PVC). These products are currently facing a global oversupply issue, and their prices are severely impacted.

As a "barometer" of the petrochemical industry in Latin America, Braskem announced at the end of September this year that it had hired external consultants to explore financial options, resulting in a sharp drop of over ten percent in its stock price. Investors and credit rating agencies generally believe that this move indicates Braskem will initiate debt restructuring. The company's bonds maturing in 2026 are particularly concerning, and the three major rating agencies—S&P, Fitch, and Moody's—have all downgraded Braskem's debt rating. To make matters worse, Braskem's polyethylene production subsidiary in Mexico, Braskem Idesa, is also expected to initiate debt restructuring.

In Brazil, styrene product manufacturer Unigel recently filed for judicial reorganization with the Second Bankruptcy Court in São Paulo after two years of debt restructuring negotiations and repeated negotiations with creditors. On the other hand, Brazilian chlor-alkali producer Unipar is one of the few "bright spots," as the company’s financial situation is gradually improving, and due to most of its energy needs being met by internal renewable sources, its cost structure is becoming healthier.

As the second largest economy in Latin America, Mexico's petrochemical producers are in a better financial situation than their Brazilian counterparts, as high trade protection policies have helped them withstand the impact of global supply surpluses. However, the challenges faced by Mexico's state-owned oil giant, Pemex, may pose a greater threat, as the company is burdened with $100 billion in debt, has underperformed, and its facilities are severely outdated.

The president of the Mexican Chemical Industry Association (Aniq) stated that if Pemex can restore healthy operations, it is expected to unlock up to $50 billion in investment for the Mexican chemical industry. However, the current situation of Pemex has not improved, and organizations such as the International Energy Agency (IEA) predict that due to Pemex's financial issues, Mexico's crude oil production could fall to 1.3 million barrels per day by 2030.

In September, the Mexican government announced plans to significantly increase import tariffs on various chemicals and polymers at an appropriate time in the future. This move may help domestic producers consolidate their market share and improve their financial situation. The imposition of these tariffs also indicates that the trade policy of Claudia Sheinbaum's government is gradually aligning with that of the United States.

In a report released by Brazilian investment bank BTG Pactual in early October, potential opportunities for Mexico's two major chemical producers, Alpek and Orbia, were specifically highlighted. Analysts pointed out that although Alpek's main markets (such as PE and PET) remain sluggish, the decline in costs of key raw materials like monoethylene glycol (MEG) and paraxylene (PX) provided support for its profits. The performance of Alpek's plastics and chemicals division was lackluster, yet despite the weak fundamentals of the petrochemical industry, the company's stock still rose by 13.1% in September. This increase may be attributed to trade-related initiatives promoted by the Sheinbaum administration and the introduction of the 2026 economic package. These measures include amendments to the General Import and Export Tariff Law (LIGIE), proposing tariffs on 1,463 categories of products. Through high tariffs, the Mexican petrochemical industry is given a breathing space.