SAO PAULO, BRAZIL - The Brazilian government's decision to lower commodity resin import duties to 2 percent will leave the domestic industry unprotected and may result in a halt to newcapacity investment, says a top executive of a leading national resin company. The decision to lower the duty from 14 percent is ``crazy'' and ``a big mistake,'' accoding to Alexandrino de Salles Ramos de Alencar, director of Poliolefinas-PPH, a major producer of polyethylene and polypropylene in Brazil.
Under the South American Mercosul free trade pact, Brazil and two of the other partners, Uruguay and Paraguay, agreed to lower commodity resin import duties to 2 percent in May.
The three nations agreed to a schedule that will see duties rise 2 percent per year to return to the original 14 percent tariff in the year 2001. The fourth Mercosul partner, Argentina, which is almost self-sufficient in commodity resins, is maintaining its external duty at 14 percent, according to Francisco Salazar, foreign trade specialist at the Brazilian plastics industry association Abiplast in SÃo Paulo.
``Worldwide, all petrochemical businesses are protected. In the U.S., it's 12.5 percent [duty]. We need some protection because you cannot build factories so fast. They take two years to build and the commodity business is cyclical,'' Salazar said at Brasilplast '95 in SÃo Paulo.
De Alencar said the government believes that a low duty will open the door to imports, thereby helping to keep domestic prices from rising, restricting inflation. He argued that an increase in resin prices need not be inflationary.
But, with signs of economic slowdown in developed nations, the danger is that Brazil soon may be a target for heavy foreign resin exports, he said. The duty also could upset the trade balance in the Mercosul trade area, letting foreign resins into partner states Argentina, Uruguay and Paraguay.
He pointed out that since the country's economic recovery in 1994, resin demand has grown rapidly.
De Alencar's discontent was echoed by Brazil's chemical industry association Abiquim (Associacao Brasileira da Industria Quimica e de Produtos Derivados). Abiquim continues to press the government to reverse its low duty policy, he said.
Poliolefinas-PPH, part of the Bahian Odebrecht conglomerate, which currently produces 1.65 billion pounds per year of PE and PP in Brazil, plans to build a PP plant with a capacity of 220 million to 286 million pounds per year at the Camacari petrochemicals complex in Bahia state within two years.
But the project remains uncertain because of the low duty and insecurity over feedstock supplies.
De Alencar cited a propylene shortage and the need for the primary chemical producer Copene to expand capacity.
``We believe we need growth in production because [Brazil's 1994 economic recovery plan] will lead to growing purchasing and consumption. But we also need something called feedstock,'' he said.
De Alencar said his company is waiting for Copene, based at the Camacari complex, to sign a supply contract before going ahead.
He added that there is a shortage of available ethylene stocks and his firm would like to see cracker capacity expansion.