Michael McCoy
C&EN Northeast News Bureau

All eyes in the Latin American chem ical industry are on Brasilia, Bra zil's capital, where later this month the country's central bank is expected to announce the winner of an auction of assets at the Copene ethylene cracker.

The auction, analysts say, is the first step toward unraveling the Brazilian petrochemical industry's complex ownership structure and paving the way for a heavier presence--and more investment--by big multinational chemical companies.

The Copene ethylene plant at Camaçari in the northeast corner of the country is the largest of three Brazilian crackers. Up for sale is a 77% ownership stake in Norquisa, a holding company that controls the cracker. Among the other assets being sold are the state-owned holding company Conepar; the high-density polyethylene producer Politeno, owned by the Suzano family; and the polyethylene terephthalate maker Proppet, owned by the Mariani family.

Several interested parties have paid the $120,000 or so required to look at the financial figures of the assets being sold. Bids are scheduled to be opened on Dec. 14.

Dow Chemical is one company examining the books. Oscar Vignart, southern region president for Dow Latin America, calls the sale a solid start to changing the way the petrochemical industry is organized in Brazil. "For many years, Brazil has talked about change," he says. "This is the first major one."

Indeed, Graciela de Marzio, vice president for chemicals and feedstocks at Tecnon USA in Houston and an expert on the Brazilian chemical industry, says most other deal-making in Brazil is on hold in anticipation of the auction results. "Nothing in Brazil will move before that is resolved," she says.

Vignart declines to be specific about Dow's intentions toward the assets, but de Marzio says Dow is in fact a likely candidate to purchase them. The company is already a shareholder in the complex through its ownership of the Brazilian polystyrene maker Estireno do Nordeste. It also operates a propylene oxide plant in Brazil and is half owner of a major toluene diisocyanate operation.

Ultrapar Participações, parent to Oxiteno , a midsized producer of ethylene oxide and other chemicals, has also expressed interest in the Norquisa stake and, being a Brazilian company, is something of a government favorite. Oxiteno was stymied in its effort to become Brazil's first acrylic acid producer last summer when BASF revealed that it had struck a deal with the Brazilian national oil company, Petrobrás, providing it feedstock propylene for an acrylic acid unit.

The owners of Brazil's southern ethylene cracker in Triunfo, known as Copesul, have publicly stated that they are in the running for the Copene assets as well, but de Marzio has doubts about their motives. She notes that Copesul's main shareholders are Ipiranga Petroquímica, which is for sale, and Odebrecht, which is heavily in debt. She figures that the Copesul bid is mainly an effort to improve the perception of assets at Copesul that could be sold.

Regardless of which company buys the Norquisa stake, de Marzio says the sale--and the subsequent restructuring moves that it should precipitate--will mark a fading of local family control of the Brazilian petrochemical industry. "The Brazilian families will all be out in a couple of years," she predicts.

De Marzio maintains that the lack of big-company presence in Brazil has stalled development of the industry. For example, she says that PQU, the smallest of the three Brazilian ethylene crackers, near São Paulo, should be expanded well beyond its current capacity of 500,000 metric tons per year; it hasn't, though, because of lack of commitment on the part of Unipar, a family-owned firm that is its majority owner. "If a multinational owned PQU, the expansion would already be ongoing," she contends.

Unipar, however, isn't standing idle. Along with the Suzano group, it is backing Rio Polimeros, a natural-gas-based ethylene cracker and associated polyethylene plant that are planned for Rio de Janeiro state. The project backers are currently trying to raise financing; start-up, delayed several times already, is scheduled for 2004.

The multinationals aren't too active in ethylene and polyethylene in Brazil, but they are doing a lot of expansion downstream of the crackers. For example, in addition to its acrylic acid project, BASF is building plants for butyl acrylate, superabsorbent polymers, and polystyrene, for a total investment of more than half a billion dollars.

Also, Monsanto is building a $350 million plant at Copene to make its Roundup glyphosate herbicide, while DuPont is spending $100 million on a Lycra spandex plant in Pauliñia, near São Paulo. Degussa-Hüls broke ground last month on a carbon black plant in Pauliñia.

Solvay and joint-venture partner Produtos Quimicos Makay announced two weeks ago an expansion of a hydrogen peroxide plant in Curitiba, south of São Paulo. And BASF and Dow are jointly studying construction of a new styrene plant in Brazil, Vignart notes.

Dow is one of the few companies in the midst of a major Latin American investment outside of Brazil. In August in Bahía Blanca, Argentina, the company started up a high-density polyethylene plant expansion and opened a staff training center. Vignart says Dow is now in the commissioning stage of a much larger project--the addition of world-scale ethylene and polyethylene plants. All told, Dow is investing $720 million at the site.

Also coming onstream in Bahía Blanca is Profertil, a 50-50 joint venture ammonia/urea plant built by Canada's Agrium and Repsol YPF, a Spanish oil company. The $700 million facility is expected to be a major fertilizer supplier to farmers in Latin America and around the world; however, last month the urea half of the complex was ordered shut down because of an ammonia leak.

Both the Dow facilities and the fertilizer plant are being supplied by the Mega Project, a partnership between Repsol YPF, Dow, and Petrobrás that is bringing natural gas from the southwest basin of Argentina to Bahía Blanca. The fertilizer plant will consume methane, Dow will consume ethane, and Petrobrás will market the remaining gas fractions.

Vignart, who is also head of the Argentinian chemical association, admits that the Argentine economy has been a laggard in Latin America. This is partly because of a strong currency compared with Brazil and partly because of investor uncertainty while the government tries to close a persistent budget gap and win an International Monetary Fund (IMF) aid package.

However, he's hopeful that the aid package will be approved, and this year's anemic economic growth will turn into higher growth next year. "Growth will depend on the mood and attitude of business," Vignart says. "With the IMF and World Bank agree ment, the conditions are there for recovery. How far, though, I can't tell."

After shrinking sharply in 1999, the Venezuelan economy is recovering this year. However, chemical investment seems to have been on hold ever since Hugo Chavez was elected president of the country on a platform of increased social spending of oil profits.

At the Latin American Petrochemical Annual Meeting in 1999, officials from Mobil Chemical and Pequiven, the chemical unit of the national oil company, Petróleos de Venezuela, affirmed that engineering work on a $2.3 billion joint-venture cracker was proceeding toward completion in 2004. However, no word on the project came out of this year's meeting, held in November in Rio de Janeiro.

On the other hand, a huge, $1 billion urea and ammonia fertilizer project involving Pequiven, Koch Industries of the U.S., Snamprogetti of Italy, and Empresas Polar of Venezuela is on track for completion early next year. Pequiven President Eduardo Praselj reaffirmed to reporters earlier this year that a second, equally big fertilizer plant was also in the works.

Pequiven says it wants to invest $8.7 billion in chemicals this decade, including plants to make acetic acid, styrene, cyclohexane, and polypropylene. The company wants partners for these projects, however, and so far it hasn't lined them up. Indeed, a planned styrene project with Chevron Chemical fell through last year.

In Mexico, investment in basic chemicals continues to be on hold, despite strong economic growth, because of a standoff between industry and the government-owned oil company, Pemex, over feedstock prices. The industry is putting its hopes behind Mexico's newly elected president, Vicente Fox, a former businessman and the first president in 70 years not to come from the Institutional Revolutionary Party.

Fox has vowed not to privatize Pemex, but local officials see a positive sign in his recent appointment of Raul Muñoz Leos, previously a DuPont Mexico official, as chief executive officer of the oil company. ANIQ , the Mexican chemical industry trade group, notes that, as head of DuPont Mexico, Muñoz favored privatizing Pemex's petrochemical operations.

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Even in state hands, some modest basic chemical investments are going ahead. For example, Pemex plans to increase ethylene capacity at its Morelos and Cangrejera crackers by 100,000 metric tons annually as part of a $100 million refurbishing. Pemex Petrochemicals General Director Armando Leal said earlier this year that further expansion of the crackers is desired; however, that would require participation by outside investors who so far have been reluctant to invest in an industry controlled by the state.

Heavy private-sector representation in Fox's Cabinet--in addition to Muñoz, Energy Minister Ernesto Martens is a former Union Carbide executive--leads Mexico watchers to conclude that economic reforms will continue in Mexico.

This is good news as far as Dow's Vignart is concerned. "Dow's experience in Latin America throughout the years has been very good, and we've been able to adapt to changing economic conditions," he says. "We believe current reforms will make those investments and decisions even more rewarding in the future."

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Note: Trade figures do not include pharmaceuticals or photographic materials. Sources: Country chemical industry associations

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