Outlook for the Latin American Petrochemical Industry 2026: Pressing Forward in the Trough

If 2025 is the year when the Latin American petrochemical industry seeks to find its bottom and stabilize, then 2026 will be the real test of the "depth of the bottom." For most producers, the core issue of this year is not recovery, but how to survive the cold winter.

In 2026, the core objectives of Latin American petrochemical companies will focus on three main directions: maintaining stable cash flow, resisting the impact of imported products to preserve market share, and reassessing the value of their assets in the context of global oversupply to decide on retention or disposal.

The fundamentals of the global petrochemical industry remain weak, with a particularly severe impact on the Latin American market. The pace of capacity expansion continues to exceed the growth rate of demand, resulting in narrowed price differentials and long-term low prices for core polymer products such as polyethylene (PE), polypropylene (PP), and polyvinyl chloride (PVC).

Latin America has traditionally been in a passive position as a price taker in the petrochemical industry chain and is highly dependent on imported resources. Therefore, it has been particularly hard hit during the current downturn in the industry cycle. As a senior executive stated at the 2025 Latin American Petrochemical Association (APLA) meeting, the current industry predicament is no longer a cyclical recession, but a "new normal" that companies must adapt to.

Brazil: Survival Pressure under Trade Protectionism

Brazil has a population of 215 million and its economy accounts for nearly one-third of the total in Latin America. In 2026, it will continue to be the focal market for the petrochemical industry in the region.

Brazil's domestic demand for petrochemical products is expected to moderately rebound from the 2025 low, driven by potential monetary easing policies and fiscal stimulus measures characteristic of an election year. However, even if demand returns to 2024 levels, producers will still face the dual pressures of thin profit margins and intense import competition.

Government policy support remains a key variable for the development of Brazil's petrochemical industry. On Christmas Eve 2025, Brazilian President Luiz Inacio Lula da Silva officially signed the Presiq Act, designating it as a cabinet-promoted incentive policy for the chemical industry. This policy, driven by long-term lobbying from chemical companies, aims to replace the current Reiq incentive plan.

The implementation of the Presiq policy again highlights the Lula government's determination to protect domestic chemical enterprises and resist the impact of imported products.

Supporters believe that this policy is in line with global green industry policies such as the EU's "Green New Deal" and the United States' Inflation Reduction Act, and can drive green investment in the post-pandemic era. Critics, however, argue that it is merely using taxpayers' money to "prop up" domestic industries that lack competitiveness in terms of costs and raw materials.

In 2026, the controversy surrounding this policy will intensify. On one hand, businesses will need to navigate the complex compliance requirements brought about by the new policy; on the other hand, the presidential election in October (which will elect the president for the 2027-2030 term) will bring significant political risks.

Current President Lula plans to run for re-election. If successfully elected, he will begin his fourth presidential term at the age of 81 (his previous two terms were from 2003 to 2011).

If Lula loses the election and a right-wing government advocating for economic liberalization comes to power in 2027, the current framework of trade protection policies may face disruptive adjustments.

The core issue of this policy uncertainty lies in the competitiveness of Brazil's chemical industry—whether enterprises can free themselves from dependence on government protection policies and achieve sustainable profitability.

This contradiction is vividly reflected in Braskem, a leading polymer company in Brazil. As a bellwether of the petrochemical industry in Latin America, the largest petrochemical company in Brazil, and one of the top ten polymer producers globally, Braskem will face multiple pressures in 2026, including high leverage, unresolved debts related to disasters in Alagoas, and unclear control structure.

Braskem Idesa, a polyethylene production company jointly established with a Mexican enterprise, is considered the "crown jewel" of the group due to its advantage in ethane raw materials. However, even this premium asset has not been spared from the impacts of market fluctuations and debt restructuring — the joint venture encountered a debt default at the end of November.

For Braskem and similar companies, the keyword for 2026 is not growth, but "buying time." They are hoping for favorable trade protection policies to help them survive the unprecedented industry winter.

In an exclusive interview with ICIS regarding Braskem's financial troubles, Carolina Chimenti, a Brazil chemical industry analyst at Moody's, stated bluntly, "In order to achieve sustainable development, Braskem must become profitable without relying on government subsidies."

Furthermore, Brazil is working to address the long-standing substantial deficit in fertilizer trade. As a major agricultural exporter, Brazil's demand for fertilizers is increasing year by year.

Under the promotion of the Lula government, the state-owned energy giant Petrobras plans to put three nitrogen fertilizer plants into operation in early 2026. This move will slightly increase Brazil's domestic supply capacity for ammonia and urea, thereby reducing dependence on imported fertilizers to some extent.

Mexico: Resilience Breakthrough in the Dilemma of Tariffs

The outlook for the petrochemical industry in Mexico in 2026 is also full of challenges. The country's economy narrowly avoided falling into recession in 2025, but various indicators show that the momentum for economic growth remains weak, with particularly poor performance in the manufacturing sector.

The demand for petrochemical products is expected to maintain a volatile trend, with weak domestic consumption and uncertainties in trade with the United States (which absorbs about 80% of Mexico's export goods) jointly restricting the pace of industry recovery.

Braskem Idesa remains one of the few petrochemical assets in Latin America with a structural competitive advantage, with its ethane-route production model establishing a cost barrier. Despite being deeply in debt crisis, the plant is expected to continue operations in 2026 and gradually increase its operating rate to the design capacity level.

Mexico recently announced the imposition of tariffs of up to 50% on imported products from China and other Asian countries, adding new uncertainty to the industry. This move may drive up domestic production costs and inflation levels, yet it is unlikely to fundamentally help local companies reshape their pricing power.

In the field of polymers and industrial chemicals, downstream buyers will continue to adopt a cautious strategy, primarily focusing on purchasing based on demand, with greater emphasis on supply chain flexibility rather than large-scale order commitments. Any improvement on the demand side will be gradual and highly susceptible to the impacts of trade policy adjustments and exchange rate fluctuations.

In the Latin American PE, PP, and PVC markets, the dominant trend in 2026 will continue the pattern of 2025: severe oversupply, sluggish demand growth, and the persistent contradiction of "many monks but little porridge" in the market.

Brazil will continue to be the main battleground for imported products, with international suppliers intensifying efforts to test the limits of local producers. This is especially true in the PVC market, where, despite the decline in profit margins, factors such as weak demand from the construction industry and high inventory levels will still limit the price rebound potential in 2026.

In other regions of Latin America, petrochemical producers in Colombia and Argentina will continue to pursue "going abroad strategies" to expand exports and develop specialty products as a defensive strategy.

Despite these measures alleviating operational pressures to some extent, the medium-to-long-term development prospects for the manufacturing sector in both countries remain bleak. It is worth noting that the S&P Global Manufacturing Purchasing Managers' Index (PMI) shows that Colombia's manufacturing sector has performed above historical averages in recent months, indicating a temporary recovery trend.

Sustainable Development: Long-term Theme Struggles to Support Short-term Recovery

Sustainable development remains the long-term main line of industry development, but it is difficult to provide substantial support to the market in 2026. The mandatory standard for recycled material content in Brazil will only be slightly raised in 2026, which will suppress the demand for post-consumer recycled resin. Even if the demand for recycled resin can achieve a slight annual increase, it would be considered fortunate.

In 2025, the capacity for recycled plastics in Latin America is expected to expand significantly, while the industry's operating rate is projected to remain low in 2026. The price premium of recycled materials will limit their application to high-value-added packaging sectors, making large-scale promotion difficult.

Mexico has not yet introduced a nationwide mandatory policy on recycled material content, making the recycled polymer market particularly vulnerable during economic downturns. As profit margins continue to narrow, most processing companies may abandon their sustainability goals and opt to purchase cheaper virgin resins, prioritizing the survival of the enterprise.

Industry Endgame: Winter Not Yet Over, Dawn Not Yet Arrived

For the petrochemical industry in Latin America, 2026 is not a turning point in a prolonged downturn but rather a continuation of a deep adjustment period for the industry. Weak demand, the ongoing impact of imported products, and an increasing reliance on policy support will collectively shape the industry's landscape in that year.

Some analysts predict that the global petrochemical market's supply and demand rebalance may show substantial results by 2027.

Companies that can survive through cycles and thrive until 2027 will undoubtedly be those that strictly control costs, optimize their balance sheets in 2026, and learn to adapt flexibly in a continuously fluctuating market environment.

This brutal industry crisis demands that companies push for cost reduction and asset consolidation with the determination to "cut off an arm to survive."

The wounds left by this crisis on the Latin American chemical industry and the entire industrial system can only be fully assessed through a calm and objective review once the industry recovery cycle arrives and companies are relieved from survival pressures.

It is evident that the arrival of that day still requires time.