Polymer buyers from various Latin America countries point to a key problem hampering the market: limited access to credit and loans.
“Payments get delayed a lot,” a Mexican distributor said this week.
The distributor – which imports polyethylene (PE), polypropylene, (PP) and polystyrene(PS) from the US and also sells domestically produced material – said customer payments are usually made 45-60 days after an order is placed.
“The transactions made today will be paid in January,” the source said. End-of-year holidays further delay the payment cycle.
“We are having problems with payments,” the distributor said. “[Customers say] I pay you in US dollars but you have to give me today’s [currency exchange rate].”
By the time the transaction is complete 45-60 days later, the exchange rate could take a drastic turn. The Mexican peso, for example, had an exchange rate of Ps18.84 to the US dollar on 9 September, but the fell 2.4% to Ps19.31 by 7 October.
US politics also plays a role in the market. “We will see how elections go,” the source added.
On 20 September, the Mexican peso reached a historic Ps19.82 to the US dollar, tracking news of the US Federal Reserve possibly raising interest rates as well as polls showing Republican candidate Donald Trump ahead of Democratic candidate Hillary Clinton.
A US seller, placing PP material into the Mexico market, said it is facing a harsh reality as export volumes have fallen, mainly tracking the currency exchange rate.
The seller said that it faces increased competition when other regional currencies fall against the US dollar, making imports from the other countries less expensive.
The currency situation is not exclusive to Mexico. In Chile, where the currency has been mostly steady over the past few months, a seller of imported resins also complains about collecting unpaid bills.
“Profitability is, every time, more difficult because of the [lack of] access to credit loans,” the seller said.
The Chilean seller explained that some banks are restricting loans, and buyers do not pay on time. If the seller does not get paid, it has no money to purchase more material, and things can unravel very quickly.
A distributor in Peru agreed: “There are many delays in paying. They [customers] are taking too long.”
In Venezuela, a transformer said that credit loans “are very difficult to obtain, and the shortages of material has not affected much because of the soft demand".
A Brazil distributor selling PE, PP and PS said: “There is much uncertainty with the currency… people always talk about that.”
But all is not negative.
“[Getting] credit is very expensive," the Brazilian distributor said. "At the same time, it is not so bad because only the robust will remain."
Banks and credit companies, seeking to cover possible nonpayment, often impose new restrictions.
Looking ahead, some help could come from projected improvements to Latin America's economies.
GPD growth in South America is projected to rise from -2.0% in 2016 to 1.1% in 2017, according to the International Monetary Fund (IMF) October projection.