Latin American chemical sector buoyed by low oil, strong end markets in 2016

Fitch Ratings expects the credit profiles of rated Latin American chemicals to remain stable during 2016 despite low petrochemical prices, the analysts said in a new report issued Tuesday.

"Low oil prices should benefit Braskem's cost structure, which is reliant upon derivative oil product, naphtha," according to Gilberto Gonzalez, associate director at Fitch. 

Producers in Mexico such as Alpek, Mexichem,  and Grupo IDESA should benefit from solid North American demand. 

"Growth in key automotive, building and construction, and packaging end markets remains robust." said Gonzalez.

Latin American chemical companies will likely maintain high capex relative to cash flow generation through 2016, according to the Fitch report. Aggregate investments for rated chemical companies in the region should remain high and total about $1.7 billion in 2016, slightly above the $1.6 billion projected for 2015. 

The projected cash flow generation for companies remains solid, in part boosted by depreciating currencies. Additionally, liquidity remains sound for many companies. This combination should result in stable to lower net leverage in most cases, Fitch says. 

The full report 'Outlook 2016: Latin American Chemicals' is available at www.fitchratings.com.