May 15 COVID-19 Latin America Impact Report

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OIL & GAS
The hydrocarbon market in Latin America continues to retract due to the crude and natural gas demand crisis. In the third month after the fall of international crude oil prices, expectations of a rapid market recovery are decreasing. The lifting of quarantine restrictions has increased the internal market demand in several countries, but not enough to allow oil companies to revive their economies this year.

The main market players already have postponed much of their investments until 2021, and it is expected that the highest percentage of investments for the rest of 2020 will be used to guarantee the production of each company's most profitable assets. This week, Ecopetrol, Murphy Oil, Geopark, YPF Argentina, and ENAUTA have declared new budget cuts for 2020.

Industrial Info has identified $3.99 billion of investments originally scheduled for 2020 that have been delayed until 2021 due to the pricing scenario.

Mexico, Brazil, Ecuador, Colombia and Argentina, the main oil economies in Latin America, continue to struggle with high levels of crude product overstock and very low levels of demand for refined products. PEMEX, the Mexican state oil company, declared force majeure to postpone its refined imports until third-quarter 2020 due to the lack of storage capacity at its terminals. The company's upstream strategy is focused on discovering new low-cost production fields in shallow waters to replace production from fields that are no longer profitable at current prices.

METALS & MINERALS
Mining activity in Argentina was suspended on March 20 due to the nation's COVID-19 lockdown; however, since April 6, miners were allowed to restart operations that had been placed under care and maintenance. The Cauchari Olaroz lithium project was allowed to continue with construction, but the planned 2021 completion date will be affected. Pan American Silver is restarting operations at the Manantial Espejo Mine in Patagonia, but with less workers on site and extreme health measures being taken. Fortuna Silver plans to resume Construction of the Lindero gold project in Salta Province in May.

Although Mexico's government extended the health state of emergency until May 30, mining is now considered as an essential activity, and miners will be able to restart operation on May 18. Companies will implement new health and social protocols from May 18 to May 31 in order to be ready to operate from June 1. Exploration and field work are expected to resume starting May 18 as well. Pan American Silver is preparing to restart its La Colorada and Dolores operations on May 18. Endeavour Silver anticipates reopening its three Mexican mines on May 18. The Guanacevi, Bolanitos and El Compás mines are all located in municipalities with low or no transmission of COVID-19, Endeavour Silver said. Coeur Mining has started activities at its Palmarejo Mine, following the implementation of new health measures.

The Brazilian government, led by President Jair Bolsonaro, has been against a total lockdown in the country in order to preserve the economy. Mining was allowed to continue, and mining companies maintained operations and projects. However, because of the rise of contagious cases and deaths, some state governors have begun to declare local lockdowns, causing confusion for the industry. Companies began to shut down operations or reduce on-site workforces to prevent the spread of the disease, causing a slowdown for Brazil's economy.

Brazil's steel sector is being adversely affected by the lack of local and global demand. Usiminas has stopped Blast furnaces 1 and 2 as a drastic measure to mitigate the economic impact.

Peru's biggest mining companies are set to restart operations in the upcoming days and ramp up to around 80% of normal production levels within a month. The mining industry produces up to 60% of the country's exports and has been carrying out limited operations on essential works and maintenance. Companies will need to adapt their plans to meet government health and safety guidelines. Under guidelines from Peru's ministry of energy and mines, the sector will be reactivated in three phases: the first includes large-scale mining, the second includes medium-sized operations and the third involves small-scale mining. Peru needs to reactivate mining activities as soon as possible in order to mitigate adverse economic effects caused by the pandemic.

Mining in Chile never stopped completely; however, some companies shuttered their operations or took measures to curb the COVID-19 outbreak. State copper minor Codelco has partially restarted expansion works at its Chuquicamata and El Teniente mines, which were suspended since March. Lithium miner Albemarle said it was scrutinizing its capital investments in order to preserve cash. Its La Negra 3 project is being slow-walked to preserve capital in the near term.

REFINING
Efforts to curb the spread of COVID-19 continue Latin America, but some countries have made their restrictions more flexible than others.

Argentina, for instance, began to reopen certain activities, and employees are gradually returning to work, leading to a slight increase in fuel demand. This could be a sign of market resumption and an opportunity for refiners to start to increase their run rates.

Colombia is seeing a significant production increase when compared with what state-owned Ecopetrol has had over the last few weeks, by having the 250,000 barrel-per-day (BBL/d) Barrancabermeja Refinery running at approximately 20% more.

Ecuador, on the other hand, is still unable to restart its facilities, and EP Petroecuador continues keep its 110,000-BBL/d Esmeraldas and 45,400-BBL/d La Libertad refineries shut down.

COVID-19 REFINING REPORT SUMMARY OF THE WEEK:
Jamaica
Petroleum Corporation of Jamaica continues to run its 35,000 BBL/d Kingston Refinery at a 60% run rate. Refinery authorities will continue evaluating that rate and may have to lower it to 50% if demand for products continues to drop.

Venezuela
Petro San Felix is operating its 160,000-BBL/d Petro San Felix Venezuela Crude Upgrader at minimum rates, estimated to be 35-40% of total capacity, due to Venezuela´s financial constraints, restrictions and COVID-19.

Argentina
YPF SA's 28,000-BBL/d Plaza Huincul refinery was restarted after being offline due to COVID-19. The state-owned oil company had shut down all processing in the second week of April except for the 440,000-metric-ton-per-year methanol unit, which was kept online. The 3,000-BBL/d reformer remains offline; a restart date has not been disclosed. The refinery is running at 55% of normal capacity.

YPF SA continues to run its 205,000-BBL/d La Plata refinery at reduced rates. The 90,000 BBL/d Crude Topping C and 25,000-BBL/d Crude Topping 4 units are online, processing a total of 58,000 BBL/d, while other processing units are kept at 50% of normal capacity and may continue as such during May, with a ramp-up in production in June or July once demand starts to increase. A 21-day planned turnaround at the 90,000-BBL/d Crude Topping D, 18,000-BBL/d Vacuum, 5,400-BBL/d Paraffin (HTP) Hydrotreater and associated units began on May 8; however, only minor repairs will be performed this time.

Raizen Argentina continues with a shutdown of its 93,000-BBL/d Buenos Aires Refinery in Dock Sud. Work shifts are gradually returning to normal and the restart of the Crude Area is expected, followed by cracking units, beginning next week in order to have the facility running by early June. However, a final decision on the restart will depend on market conditions.

Colombia
Ecopetrol restarted the 35,000-BBL/d FCCU (UOP 2) on May 9 at its 250,000-BBL/d Barrancabermeja refinery, after the unit was shut down on April 11. The facility has increased operational run rates to 65% of normal capacity from 45% capacity. Only personnel from the Operations Department continue to be on site; maintenance works on the 41,000-BBL/d Crude U-250 unit, which kicked off on March 2, remains suspended until the situation improves. Expectations are to maintain the current status until early June. Ecopetrol continues to operate its 165,000-BBL/d Cartagena refinery at 55% capacity.

Ecuador
EP Petroecuador's 110,000-BBL/d Esmeraldas and 45,400-BBL/d La Libertad refineries remain shuttered due to COVID-19. Esmeraldas, which was forced to shut down in April 7 due to a power outage and then kept as such due to storage unavailability caused by low demand, is expected to remain shuttered until market conditions improve.

Chile
ENAP Refinerias continues operating its 115,700-BBL/d Bio Bio Refinery at 65% capacity. That rate is expected to continue until the 40-day maintenance work on the 50,300-BBL/d Crude Topping 1 unit, starting May 16, is completed.

ALTERNATIVE FUELS
With a historic high in biofuel prices seen at the end of February, the subsequent fall in prices was even more evident. Ethanol prices fell 38% during March, with a greater impact on hydrated ethanol. Biofuel consumption fell 18% in Brazil: a reduction of nearly 20 billion liters. Ethanol production is expected to fall 13% in 2020 - the equivalent of 4 billion liters - to approximately 27.5 billion liters. Corn ethanol production is estimated to be between 2.2 billion and 2.5 billion liters for 2020.

The move toward sugar production has become even more appealing and evident among ethanol producers in the south-central region of Brazil. Latest figures released by Unica note that sugar production in south-central Brazil totaled almost 3 million tons in April, an increase of 115.8% compared with the same period last year, while ethanol sales plunged 30%. With sugar proving to be more profitable than ethanol amid measures to contain the coronavirus pandemic, mills have confirmed expectations that the harvest will be more "sugar-based," given a favorable exchange rate for sweetener exports. The dry weather also has helped to increase production, with there being an increase of 1.6 million tons in sugar production in April resulting in part from the change in production mixes from ethanol to sugar at production plants and the increase in raw material processed. In the second half of April 2020, mills in the south-central region crushed just shy of 38 million tons of sugarcane, up 19.6% over the same period last year. Sugar production totaled 2 million tons during this same period, an increase of 93.5%, while ethanol production increased 1.5 billion liters (5%).

With demand for fuels falling since mid-March, and the sugarcane harvest in the Center-South having commenced on April 1, the volume of ethanol stored by mills in the region has reached record levels. According to data from Brazil's Ministry of Agriculture, Livestock and Supply, the total amount stored reached 2.94 billion liters on May 1 - a 114% increase over the levels registered during the same period last year. At this time of year, it is unusual for there to be a growth in ethanol stocks due to the increase in supply; however, low demand is hindering the flow of the product. In addition, plants have already started the season with tanks fuller than usual. This has led to many companies evaluating smaller investments to construct new ethanol storage tanks either in the short term to combat the crisis, or in the medium to long term in preparation for the economic difficulties that the companies may face. Industrial Info has reported on nine investments, representing $13.65 million, for ethanol storage tank additions since the COVID-19 outbreak began in Latin America. Unica estimates that the sector needs to invest about R$9 billion (US$1.55 billion) to increase its storage capacity by 6 billion liters in order to accommodate the ethanol surplus.

Despite the negativity surrounding the Alternative Fuels Industry, investments in the corn ethanol sector continue to be announced in Brazil.

POWER
About 335 Electric Power Industry projects were updated between May 1 and May 14, and 118 projects of these have been affected by COVID-19 precautions. There have been no cancellations, and delays differ in how they affect scheduling and the planning and permitting process.

New-build projects are the most impacted project type, while maintenance projects are the least impacted. New-build projects require more complex permitting and authorization, as well as the largest investments. In general, maintenance activities, which require far less investment, have been included as "essential" activity across the region.

CHEMICAL PROCESSING
Brazil is now the sixth-worst affected country by the pandemic worldwide, as is reflected in its Chemical Processing Industry. Most companies are implementing bio-safety measures so as to continue operations with only essential personnel on site, with most administrative employees working remotely. Petrochemical producers like Braskem have been forced to reduce their productivity as much as possible.

A clear example of the impact of the pandemic in the Chemical Processing Industry is that 12 capital projects, representing a total investment of $30 million, kicked off between March and May 2019, whereas no capital projects kicked off in the same period in 2020. Most capital projects, such as the boiler upgrades at Mexico Carbon Manufacturing S.A. de CV's plant in Altamira, Mexico, or the construction of Quimica Lucava S.A. de CV's new fertilizers plant in Guanajuato, Mexico, are being postponed until the second half of 2020, or even further into 2021.

PHARMACEUTICALS
Major private pharmaceutical companies, as well as small companies, public companies and contract manufacturing organizations (CMOs), are boosting production of therapeutic products related to COVID-19. For instance, Cuba's Centro de Ingenieria Genetica y Biotecnologia is planning to add production lines for an injectable antiviral vaccine (CIGB 210) by the third quarter, as well as an injectable anti transferase peptide vaccine (CIGB 300) line expected to wrap up by the fourth quarter.

PULP, PAPER & WOOD/FOOD & BEVERAGES
Emerging market currencies have been badly affected by the COVID-19 pandemic. In Brazil, the real has fallen to an all-time low of R$5.40 to the U.S. dollar--a 25% drop in value in the past month. A similar decline has been seen with the Mexican peso. This trend could have a devastating effect on project spending across Latin America, particularly the Food & Beverage and Pulp, Paper & Wood industries.

Brazil's pulp market is the largest in the region, and high demand from China has kept its export activity from slowing.

Important export sectors of the Food & Beverage Industry, such as agricultural production and meat processing, are enjoying more competitive prices amid the pandemic. However, sectors such as alcoholic beverages, soft drinks and processed foods have seen a major drop in their profits during the first two quarters of 2020.

INDUSTRIAL MANUFACTURING
As a result of COVID-19 pandemic, thousands of Industrial Manufacturing plants in Latin America have halted production, stalled construction activity and significantly delayed planned maintenance or expansion activities.

Since March 2020, Industrial Info has identified $4.39 billion in grassroot plant spending that has been delayed due to the COVID-19 pandemic.

Projects under construction are not cancelled, but their completion dates may be delayed. Medium-term projects--those kicking off construction in 2021--have not been cancelled, and owners are optimistic that this situation will improve and the projects will take place as scheduled, or with delays of less than 12 months.

Industrial Info is tracking $115 billion worth of investments in Latin America's Industrial Manufacturing Industry that are scheduled to begin turning dirt before 2022. This includes some projects that have been delayed from earlier years. But only $81 billion of those projects show a medium chance (70% to 80% probability) of beginning construction as scheduled, while $18 million is categorized as low-chance (0% to 69% probability) and $16 million as high-chance (81% to 99% probability).

About $20.4 billion worth of expansions, upgrades and equipment-addition projects have seen spending delayed due to COVID-19. Grassroot projects are more likely to be delayed, as they typically carry the highest costs; in-plant capital projects, such as building expansions, equipment additions and upgrades, generally have been delayed until the third quarter, although some will not kick off until early 2021.

Automotive Highlights:
Undoubtedly, the most affected part of Latin America's Industrial Manufacturing Industry is the automotive sector. With temporary plant closings, layoffs and employee suspensions, some companies have decided to suspend any reopening, while others have started producing again with reduced shifts.

More than 80% of vehicle production in the region has been affected by COVID-19. Mexico is among the countries to declare its automotive production "essential" activity.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.