In late 2016, the Tanker Outlook focussed on a slowdown in Latin American products imports growth, largely due to weak Brazilian demand. However, this trend appears to have reversed. Latin America is now expected to account for almost half of the expected increase in global products imports this year, despite representing only around 10% of total volumes.
Demand Starts To Stall
In 2005-12, Latin American products imports grew on average by 17% p.a. to reach 2.3m bpd, with Mexico and Brazil being the region’s two largest importers. However, in 2013, Mexican products imports fell by 14% on the back of waning oil demand, resulting in the first y-o-y drop in total Latin American import volumes since 2004. Then, in 2015, Brazil fell into a deep recession, resulting in a 20% y-o-y fall in its products imports. These factors caused the pace of growth in Latin American products imports to decelerate to an average of 1% p.a. in 2013-15, and with oil demand in the region declining since 2014, it seemed that products imports would remain muted. However, this was not the case.
Barriers In Brazil
Following the launch of a state-level anti-corruption investigation in 2014 dubbed ‘Operation Car Wash’, state-owned oil company Petrobras (which controls the majority of the country’s refinery capacity) became increasingly implicated. Due to the resultant financial and operational turmoil facing the company, the Brazilian refinery sector began to suffer from lack of funding, and in 2016 refinery throughput fell 10%. To fill the oil supply shortfall, in the same year products imports rose by 15%, despite oil demand falling by 4%. This trend has accelerated in 2017 so far, with refinery throughput down by around 10% y-o-y in 1H 2017 amidst the ongoing fallout from the investigation. Consequently, Brazil’s products imports in January-October rose 35% y-o-y, with around 70% of growth accounted for by imports from the US, particularly diesel.
Malaise In Mexico
Due to the prioritisation of drilling projects at the expense of refinery maintenance by state oil company Pemex, throughput at Mexican refineries has also been on the decline for several years, with Pemex refineries typically operating at little over 60% of capacity. In 2017, a fire in the country’s largest refinery in Salina Cruz alongside overdue maintenance at several other refineries has worsened the situation, with throughput in January-August this year reportedly down 15% y‑o‑y. The ailing state of the country’s refinery sector is highlighted by the fact that Mexico has been forced to export crude to US refineries in order to import the refined products, with the country now accounting for around 60% of all US gasoline exports. As a result of these factors, Mexican products imports in January-August this year rose by 11% y-o-y to 0.8m bpd in order to meet domestic oil demand.
So, after growth in Latin American products imports slowed in 2012-15, volumes are again growing firmly, driven by weak refinery sectors in Brazil and Mexico. With product imports into the region projected to have grown by 12% in full year 2017 to 2.8m bpd, Latin America appears to have re-emerged as a key driver of growth in seaborne products trade.
Source: Hellenic Shipping News.