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Panama Canal Expansion has Ripple Effect for Global Chemical Trade

Posted on September 26th, 2016 by in Chemical R&D

Panama canal opening

The impact of the recent Panama Canal expansion project, which more than doubled the Canal’s shipping capacity, has rippled across the Latin America region.  The growth in American oil and gas and derivatives exports is straining the region’s trade capacity, with export volumes in certain parts of the region expected to grow by 20% in the next four years alone.  Will port and shipping lanes be able to keep up with demand?

By Joe Chang, ICIS

PANAMA

The expansion of the Panama Canal will not only foster greater global trade flows in and of itself, but also force other major ports to raise their game. For the burgeoning trade in chemicals and polymers driven by US shale gas, it’s just what the doctor ordered.

The 18th annual Latin American Petrochemical and Chemical Association (APLA) Logistic Meeting in Panama City was abuzz with talk on the canal’s impact on chemical transport.

“With the evolution of US shale gas, there is a change in the energy matrix at a worldwide level. The US is a growing exporter of oil, gas and its derivatives,” said Jose Ramon Arango, executive vice president of planning and business development at the Panama Canal Authority.

HUGE INCREASE IN CAPABILITIES

The expansion of the canal in June 2016 to accommodate vastly larger ships, to the tune of up to 14,000 TEU (20-foot equivalent units) versus a previous 5,000 TEU on the container side, should go a long way to facilitate greater trade volumes of everything from cars to clothing to petrochemicals and polymers.

Chemical traffic on the Panama Canal has already been surging in the past year. From October 2015 to July 2016, around 4,062,000 tonnes in the miscellaneous chemicals category passed through the canal versus 3,480,000 tonnes in the year-ago period, noted Arango.

Even if chemicals and polymers are not transported on the larger size ships the Panama Canal can now handle, a greater quantity of overall goods passing through on larger ships in expanded channels will only help in getting chemicals and polymers through as well in a timely manner and at low cost, especially as volumes increase.

Braskem Idesa logistics manager Jose Frederico Maciel told ICIS on the sidelines of the APLA event that the Panama Canal expansion is marginally positive for the company as it could help keep shipping rates low for polyethylene (PE) exports from its Ethylene XXI facility in Coatzacoalcos, Mexico.

Braskem Idesa currently exports about 50% of its production, but aims to reduce that figure to 20% in three years as it serves more of the local Mexico market.

However, Maciel does not see the Panama Canal as a game changer for the company as it will use the same size ships as before.

PORT RIPPLE EFFECT

But it’s not just the Panama Canal that will handle all the chemicals and polymers trade. The expansion is already having a ripple effect on other ports, which are boosting their capabilities to keep up.

In the US, both the Port of Houston and the Port of Corpus Christi in Texas are undergoing multi-year capital improvements involving increasing channel depth and width, and adding more infrastructure such as state-of-the-art cranes, rail links and packaging facilities.

The Port of Houston Authority, the largest port in the US in terms of foreign tonnage (2.13m TEU/year), expects to handle 20% more volumes through 2020, driven by exports of PE resins.

“There’s about 8m tonnes/year of petrochemical capacity being built on the Gulf Coast in the next four years. That translates into a 20% increase in volumes for us,” said John Moseley, senior director for trade development at the Port of Houston Authority.

He expects 300,000 to 500,000 TEU in new exports from 2016 to 2020.

For PE resin exports from the Port of Houston, around 35% go to Latin America, 25% to Asia (through the Panama Canal), and the rest to Europe and other areas in the world.

The Port of Houston has been investing heavily in its container terminals – Barbours Cut Terminal, and Bayport Terminal – to accommodate the expected increase in traffic, said Moseley.

Investments include dredging to a deeper operational channel draft depth of 45 feet and installing new cranes and other infrastructure, including resin packaging facilities.

The Bayport Terminal expansion is about 50% complete with the rest scheduled by 2019. At full capacity, it will be able to handle 3m TEU/year, said Moseley.

The Barbours Cut terminal is being renovated and should also be able to handle 3m TEU/year by 2019 versus around 1m TEU now, he added.

The Port of Corpus Christi in Texas, US is also deepening and widening its navigation channels to accommodate larger and more ships.

It plans to expand the channel from a depth of 45 feet today, to 52 feet, and widen it from 400 feet, to 530 feet to facilitate an anticipated rise in traffic because of petrochemical and liquefied natural gas (LNG) capacity expansions, said Patricia Cardenas, director of communications.

While the total project will take about 10 years to complete, certain sections will be expanded earlier, she noted.

And Latin America needs to invest an estimated $1,250bn in its ports to support development in the region by 2040, according to Fausto Arroyo, chief executive at the CAF Latin American Development Bank.

The quality of the port infrastructure in Latin America and the Caribbean is far behind other regions, including Europe, the Middle East, northern Africa and Asia, according to the Latin America 2040 report by CAF.

The Latin American and Caribbean region must adapt and upgrade maritime installations in the region with the expansion of the Panama Canal, Arroyo said.

PROTECTIONIST THREAT

But one wrinkle in global trade is the rise of nationalism and protectionism.

“It is tough to generate growth and world commerce is stagnating. It is not shrinking, but not growing much. In this environment, we are facing a growing protectionist threat,” said Munir Jalil, chief economist at Citi for the Andean region.

The Brexit vote result in the UK was an example of protectionism – not in goods, but in labour, as citizens in the outer provinces felt competition from migrants for jobs, Jalil noted.

“The UK made a decision that destroyed 58 years of history of working towards European integration. The risk to Europe is that others may wish to follow suit. This path towards nationalism can have a strong impact on trade and capital flows. That is a great risk,” said Jalil.

The economist called US presidential candidate Donald Trump “the biggest threat today” in terms of installing protectionist measures in the US with the threat to renegotiate free trade agreements.

Additional reporting by Leela Landress in Panama City

To find out how to read more news and analysis stories from ICIS, go to www.icis.com/about/news/


 

All opinions shared in this post are the author’s own.

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