LatAm Chemical Trade Stats Point to Savings for US Purchasers
by Brian J. McCormick, guest columnist
Chemcost’s search for “the New Cheap”* winds up this month with a big opportunity story in Latin American trade.
Last month we focused on Brazil (see Brazil’s In-Balance Trade Offers One Sweet Saving Opportunity). This month our survey takes in Argentina, Costa Rica, El Salvador, Guatemala, Mexico, and Venezuela, as well as Brazil. We also followed trade to and from these countries to the Chilean, Paraguayan and Uruguayan markets. And, of course, we included trade to and from China across LatAm.
Some personal observations about the Latin American chemical sector: My own professional dealings in Brazil, Guatemala, Mexico, and Venezuela date back to 1988. In the late 1980s-early 1990s, LatAm was already a primary focus for US chemicals sourcing, part of the larger trend to seek supply alternatives in emerging markets. I believe the US chemical industry learned a great deal by partnering with its LatAm counterparts who already knew well what it meant to be truly global. Only later, toward the end of the ’90s, did the Chinese industry start to become a viable player – in my opinion, by following the LatAm-US lead in operating on a global basis.
On to our findings this month: As illustrated in Chart 1, for four of the 10 Datamyne Best Price Benchmark commodities, LatAm sources currently offer prices that are on average 32% lower than the US benchmarks.
US prices were found to be comparable to LatAm prices for the remaining six benchmark chemicals (soda ash, ethylene, magnesium dioxide, sodium silicate, stearic acid, and styrene) and so are omitted from Chart 1.
LatAm price comparisons are made to latest figures published in the Datamyne US Best Price Benchmark for January 2014 based on trade data through October 2013, courtesy of Chemcost. You can see the January benchmark on the Datamyne homepage.
Note that the timing of trade data release varies by country. Aggregate trade data from certain countries, e.g., Argentina, requires data-teasing to eliminate “units noise.”
Note, too, these key assumptions underlying the results shown:
- Savings are unconstrained, largely theoretical estimates only.
- Results obtained for glycerine and magnesium sulfate are based on limited trade volumes.
- Obvious limitations of US sugar subsidies are excluded.
- There are no guarantees for actual savings.
Potential savings for denatured ethanol and raw sugar cane outside of the US may be higher depending on purchase volumes – rising for purchases of 1MMmt or more.
Based on demand, the LatAm savings opportunity for the four chemicals ranges from $7MM to $45MM/year: If your purchase volume is moderate – e.g., 10,000mt/year scale per material – cost savings from LatAm sources approach $7MM. If your purchase volume is much larger – e.g., 100,000mt/year scale per material – savings could be as high as $45MM.
For realistic sugar and ethanol volumes of 1MMmt/year and more, unconstrained savings outside the US approach $140MM for sugar, and $240MM for ethanol.
Chart 2 provides the specific trade flows for the lowest LatAm prices.
I’ll be writing about the data suppressed in US Census import statistics, the potential resulting distortion in chemicals pricing for US purchasers, and how Datamyne import data can yield more comprehensive information.
*Special for Informex 2014 attendees: I’ll be joining the Datamyne team at Booth 929 at Informex in Miami, January 22-23 … and I’ll have advance copies of February’s column on the data suppressed by US Census and its implications for tracking trade in chemicals. Stop by and pick up a copy – I’ll be happy to answer any questions you might have about using trade data to uncover savings opportunities.
Copyright © 2014 Chemcost Interactive, LLC
About Brian J. McCormick
Brian J. McCormick was instrumental in developing procurement costing and quality assurance for P&G over a 34-year career. He is the founder and managing director of Chemcost Interactive* LLC (CI), a company offering research and analysis to support cost-efficient supply chain management.
Chemcost can assist Datamyne’s customers in identifying lower price opportunities through consulting and training. Chemcost also offers annual subscriptions to global and regional price bulletins on 225 commodities across 8 major chemical spend classes. Learn more and contact Chemcost at www.chemcostinteractive.com
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
* The New Cheap and Chemcost Interactive are trademarks of Chemcost Interactive LLC
Date posted: January 14, 2014