The resin sector did not escape Argentine President Néstor Kirchner's goal of containing inflation in Argentina. An agreement between local resin makers and the government resulted in certain raw material prices being set at December 2005 price levels for the entire first quarter of 2006. In early April, however, resin prices began being adjusted pursuant to the international market.
According to Oscar Sanchez, general manager of the Argentine Plastics Industry Chamber (CAIP), the agreement involved local polyethylene, polypropylene, polystyrene, PET and PVC resin producers and was limited to volumes sold for packaging ``basic food-basket'' items. The basic food basket in Argentina is composed of such goods as dairy products, coffee, eggs, meat, edible oil, vinegar, sugar, beans, fruits and vegetables.
``The impact of plastic packaging costs on the total cost of food products in Argentina varies according to type of food packaged, but does not exceed 4 percent,'' Sanchez said. The packaging sector accounts for 45 percent of plastics consumption in the country.
``Resin companies committed to maintain prices within a given range,'' said Elida M. Fernandez, head of marketing at PP maker Petroquímica Cuyo SAIC of Buenos Aires.
In late March, during Argenplas 2006, the company's price for PP grades as per the government's agreement amounted to about 59 cents per pound. ``We are talking about a price that is 20 percent lower than what we would like to be charging,'' Fernandez said.
Petroquímica Cuyo has about 30 percent of Argentina's PP market.
In terms of PET resin, price controls were limited to volumes sold for edible-oil bottles and did not affect the main local supplier, Voridian Argentina srl of Buenos Aires.
``The agreement obliged us to maintain prices at December levels,'' which were about 73 cents per pound, said Marcos Pinhel da Silva, account manager for Voridian's subsidiary in Brazil. ``But PET prices dropped, so we were able to charge our regular price with no restrictions.''
Though the agreements established by Argentina's government were limited to local producers, traditional exporters of resin to Argentina also felt the effects and were forced to play along.
``We have experienced a sort of psychological pressure. As product resellers in the domestic market, we started being asked to fill out forms divulging our pricing policy to the Argentine government and justifying eventual price variations,'' said André Castro, general manager of the Argentine office of Ipiranga Petroquímica SA of Porto Alegre, Brazil.
Ipiranga sells PE and PP resins produced at its plants in Brazil to the Argentine market.
``In reality, even though we are not a local resin producer, we ended up maintaining our December prices,'' Castro said. ``Within a scenario where important sectors were even prohibited from exporting products [as was the case with the beef industry, in March], you never know what kind of retaliation you may be subjected to.''
BASF Argentina SA, which holds a minor stake in Argentina's PS market by selling made-in-Brazil resins, also followed suit with the agreement and refrained from adjusting its prices by up to 9 percent.
``It seems clear that President Kirchner's government is very much interested in next year's presidential elections. And he knows that there exists suppressed inflation that is waiting to burst at any given time,'' said Gustavo Fernandez, sales manager at BASF Argentina in Buenos Aires.
In the PVC arena, no significant damage was experienced by Braskem SA, based in São Paulo Brazil. ``PVC prices in the Argentine market are pretty much aligned with those of Brazil's,'' said Rui Chammas, commercial director for Braskem's PVC business unit.
Dow Chemical Co. of Midland, Mich. - the largest PE supplier in Argentina, with production units in Bah¡a Blanca - did not comment about the recent price-stability policies for commodity resins in Argentina.
Gabriel Gioia, a member of the Ipiranga sales force in Argentina, said in a telephone interview that PE prices were adjusted roughly 4 percent in Argentina in early April, after the three-month agreement term expired.