Dow warned its customers in Argentina this week that its chemical operations, including its polyethylene (PE) operations, may face potential production cuts as a result of new government criteria affecting imports in the South American country.
Company imports of finished products will be impacted as well, which could result in supply interruptions to customers, Dow said in a 22 February letter to customers.
Argentina's tax authority (AFIP) introduced in early February new criteria to calculate the financial economic capacity (CEF) of companies and taxpayers. According to industry sources, the new criteria are hindering imports by limiting the amount of imports each company is allowed to bring into the country.
In the letter to customers, Dow says the new criteria have made it difficult to import finished products, industrial raw materials, and critical inputs for its operations. Some of those imports have no alternatives in local markets, the letter says.
Dow said it has implemented measures to delay any disruption of operations at its Bahía Blanca (PBA) and San Lorenzo (PSF) plants, but added that if the situation continues, it could result in production cuts at its industrial operations in Argentina.
The company said the situation affects numerous companies from varied industries.
When asked for further comment, a spokesperson for Dow in Latin America requested more time to provide further clarification on the issue.
Implications
According to an executive from Argentina's petrochemical industry, the government's new criteria situation is complicated for imports, even those that are necessary to produce material locally.
A global trader that operates heavily in Latin America also confirmed that there are supply problems in Argentina, and customers in the region are already aware of Dow's situation.
The executive told Argus that local companies need to present the new CEF calculation so that the government can determine their import capacity and what volumes of imports will be allowed under the new criteria.
"It is something that is still arbitrary at the end of the day," the executive said.
According to him, the CEF amounts assigned to several companies and taxpayers are too low and not compatible with their usual operations, and this prevents them from formalizing their import requests through the country's comprehensive import monitoring system (SIMI).
Imports by companies in the chemical and petrochemical sector are essential for the production of a wide variety of everyday goods. The changes in the CEF measurement will have a direct impact on the production of those goods, he added.
Operations at risk
The executive said that if a review of the data used by the SIMI system is not carried out, there is a real risk of shutdowns at several local plants due to a lack of essential inputs for various value chains supplied by the petrochemical sector.
"As foreseen by the recent modification of the AFIP regulations on the CEF, companies in the sector that face difficulties have expressed 'disagreement', but so far no response, favorable or informative, has been received [from the government]," the executive said.
"[It is causing] great confusion that only generates uncertainty and makes business more complex," he added.
Asked if the new imports criteria relates to a breakthrough IMF deal signed with Argentina on 28 January as part of $45bn debt talks, the executive said that it is not openly related to the agreement, but most likely the availability of local US dollar reserves is a point of negotiation.
Another source from the chemical and petrochemical industry in Argentina told Argus that the inconvenience is actually administrative and is being resolved.
Dow is a major player in Latin America's polyethylene (PE) market. Dow's portfolio in Argentina also serves local and regional end markets such as packaging, transportation, infrastructure, and personal care.
