IHS: Challenges grow for Brazil in age of light feedstocks

Bob Moser
PLASTICS NEWS CORRESPONDENT

Published: September 13, 2013 4:22 pm ET
Updated: September 13, 2013 4:39 pm ET

Related to this story

Topics Materials Suppliers

SÃO PAULO — Challenges lie ahead for Brazil's plastics and petrochemicals sectors, as high costs for labor, taxes, logistics and energy make up a loathed "Brazil Cost" that won't go away, according to analysts at IHS Inc.'s Latin American Petrochemicals & Polymers Conference.

The price of Brazilian-made processed plastic goods is now 29 percent higher than those of developed markets, 35 percent higher than from emerging markets and 34 percent higher than in China, due primarily to the "Brazil Cost" cocktail of input expenses. Imports have risen an average of 9 percent per year since 2003, and now make up 22 percent of processed plastics consumption in Brazil.

That lack of competitiveness for Brazil starts at its basic feedstock, most of which today is naphtha-based and imported, said Rina Quijada, senior director of Latin America for IHS. Higher gasoline demand in Brazil is also taking naphtha away from the petrochemical sector.

"With today's energy revolution in North America, light feedstocks like ethane and propane are much more efficient in making ethylenes and propylenes," she said. "So when Brazil looks at its productive environment, it sees high taxation, the lack of competitive feedstocks and a very weak local currency against the U.S. dollar. That weak currency makes naphtha feedstock more expensive."

Weak Real, silver lining

The Brazilian real has devalued about 13 percent against the dollar in the past three months, from a steady US$1=BRL2 ratio that held for most of 2012 and through early May, to a low of BRL2.43 in mid-August before settling at BRL2.29 as of Sept. 11. IHS projects the real to stabilize around BRL2.40 between now and 2017.

As Brazil's currency depreciates it has a positive impact on the country's finished product producers. Products that travel well, like film from China, were previously competing in Brazil against local producers with the help of a weak U.S. dollar. Now that the dollar has strengthened, Brazil's local finished product producers may find a bit more oxygen to survive, Quijada said.

"If the Real weakens further, plastics converters in Brazil will have a better chance to recover domestic market share, but not to compete internationally," she said. "There's a lot of room for growth within Brazil for many end-use applications in agribusiness, automotive, mining and more. If you can produce in Brazil under more competitive circumstances, you have a chance for growth."

Brazil's economic growth remains disappointing, with high inflation undermining consumer purchasing power and export demand faltering. The country's second quarter GDP growth was up 3.3 percent year-on-year, a figure that surprised analysts, but Brazil's year-end GDP growth is still expected to run between 1.5 percent and 3 percent.

Massive growth potential still exists for Brazilian plastics consumption over the next decade. Per capita consumption is currently at 35 kg, compared to 105 kg per capita in the United States and Canada.

Income growth and consumption rates by Brazil's lower middle class group, known as Class C, have grown in recent years at double the rate of more wealthy classes. Infrastructure expansion for the upcoming 2014 FIFA World Cup and 2016 Summer Olympics in Brazil should boost economic growth above what's being seen now, Quijada said.

Seeking solutions

Brazil's chemical industry, the world's sixth largest with 2012 net revenue of US$153 billion, is pushing the federal government for business-friendly policy changes to help it — and plastics producers as a result — reclaim a greater portion of domestic demand.

The Brazilian Chemical Industry Association (Abiquim) is lobbying for simplifying and lowering taxes on imported raw materials. It also is calling for investment incentives to help expand domestic production, and a federal policy by the end of this year on the use of natural gas as a raw material.

"One positive aspect I see in Brazil is that the industry is going to the government with a program, and the government is listening and trying to adjust," Quijada said. "Of course it's a huge adjustment and takes time, but they are talking, and I don't see that in other countries. I think the combination is right in Brazil. It's not an easy equation to solve, but they are looking for solutions."

The Latin American Petrochemicals & Polymers Conference was held Sept. 4-5 in São Paulo.


Comments

IHS: Challenges grow for Brazil in age of light feedstocks

Bob Moser
PLASTICS NEWS CORRESPONDENT

Published: September 13, 2013 4:22 pm ET
Updated: September 13, 2013 4:39 pm ET

Post Your Comments


Back to story


More stories

Image

Nova expanding PE research center

August 26, 2014 1:36 pm ET

Nova Chemicals Corp. has broken ground on an expansion of its polyethylene research center in Calgary, Alberta.    More

Image

Sinopec licenses PP technology to USA, posts half-year results

August 26, 2014 11:46 am ET

China's state-owned petrochemical giant Sinopec Corp. said it is licensing polypropylene polymerization technology to a U.S. plant for the first time ...    More

Image

Japan's DIC planning PPS compounding plant in China

August 25, 2014 1:28 pm ET

Japanese materials firm DIC Corp. plans to open its first polyphenylene sulfide (PPS) compounding plant in China by the end of 2015.    More

Image

China's PVC exports face challenges

August 22, 2014 2:14 pm ET

Despite robust growth in the first half of the year, China's PVC exports now faces new challenges, due to trade barriers and new capacity ramping up...    More

Image

Recycled HDPE prices climbing

August 22, 2014 11:26 am ET

North American selling prices for recycled grades of high density polyethylene resin have increased in recent months because of tight supplies of the ...    More

Market Reports

Thermoformed Packaging 2014 Market Review & Outlook North America

This in-depth report analyzes economic and market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as growth strategies being implemented by thermoformed packaging companies.

Learn more

Pipe, Profile & Tubing Extrusion in North America 2014

U.S. demand for extruded plastics is expected to grow by 3 percent in 2014, with PVC remaining the largest segment.

Plastic pipe will post the strongest gains through 2018, continuing to take market share from competing materials in a range of markets.

Our latest market report provides in-depth analysis of current trends and their financial impact on the pipe, profile and tubing extrusion industry in North America.

Learn more

2014 Injection Molding Industry Report

GROWTH, OPPORTUNITY IN SIGHT FOR INJECTION MOLDERS IN 2014

In the wake of the economic turbulence earlier in this decade, molders today find themselves in much better shape. Molders are gaining a competitive advantage by investing in people, equipment and seeking inroads into new markets on a global scale.

Growth in the injection molding industry is going to be driven by low financing costs and a continued move to reshore some business.

Learn more

Upcoming Plastics News Events

September 10, 2014 - September 12, 2014Plastics Caps & Closures 2014

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

More Events