SAO PAULO, BRAZIL — The devaluation of the real, which dropped roughly 35 percent since Brazil allowed its currency to float as of Jan. 18, has created an impasse between resin manufacturers and processors in the country.
In order to keep inflation under control, the government and public opinion — including molders — are putting a lot of pressure on suppliers to hold the line on prices of goods that do not depend on imported raw materials. But local resin makers say their products are commodities and, therefore, their prices vary with the dollar.
The most important ally for processors is a legal measure signed by the government on Jan. 28, which resulted in a freeze on naphtha prices. Naphtha is a key raw material in the plastics production chain in Brazil. The only domestic supplier, Petrobras-Petroleo Brasileiro SA, is a state-owned conglomerate that produces and imports this raw material.
``Processors must comprehend that cost has nothing to do with price in a supply-and-demand-driven market. Freezing resin prices would be unfeasible,'' said Jean Daniel Peter, president of the Sao Paulo State Synthetic Resin Industries Association (SIRESP).
``Clients usually like when prices go down, but they must also understand when they must be increased.''
According to a comparison made by a PET supplier, if the price of resin is maintained at about the same levels in effect prior to the exchange-rate change, the tonnage of PET produced in Brazil would cost local processors around $700. But the average cost of the resin elsewhere is about $1,100 per ton.
Brazilian resin manufacturers are increasing prices between 15 and 25 percent, Peter said.
``Such price adjustments are quite reasonable considering how much the currency devaluated, consequently positioning Brazilian resin among the cheapest in the world. That I am aware of, the country's petrochemical industry is not one of the most competitive in the world,'' Peter said.
Peter's price increase estimates were confirmed Feb. 12 by a commercial director at a Brazilian petrochemical firm.
``Price increases are being analyzed on a case-by-case basis, taking into account the financial health and purchase history of each client,'' said the executive, who asked not to be identified.
``However, those molders who opted to import resin prior to the real devaluation, that is, those who preferred to buy in dollars, will now have to pay the full exchange rate,'' he added.
At the Brazilian plastic molders' association, ABIPLAST, telephones have not stopped ringing with processors complaining about price increases and asking for advice regarding the best policy to follow.
``Certain raw material prices such as special additives have increased 84 percent, while resin distributors, who serve small molders, are increasing resin prices up to 45 percent,'' said an ABIPLAST director.
As a result, the plastics manufacturing market is operating at a slow pace in Brazil. Most molders, due to the international financial crisis, were facing lower sales volumes since the last quarter of 1998 and prefer to deplete their inventories rather than make new purchases.
The situation today is significantly different from a few years ago, when Brazil suffered from chronic hyperinflation. When Brazil's economy was indexed and everything increased according to inflation rates, any sales professional would raise prices without thinking twice.
Today, clients are not accepting increases and want sales personnel to negotiate with their suppliers.
Within this scenario, supermarkets are boycotting the purchase of many products.
The French chain Carrefour, a leader in the supermarket business in Brazil, announced that it will not restock shelves of suppliers that increase prices abusively. The chain also threatened to give the names of such companies to its customers.
Local news reports have prominently mentioned packaging suppliers as companies responsible for price increases.
``While this climate persists, it is preferable to not sell in Brazil,'' said a PET importer. ``Even though our product is imported and, consequently, quoted in dollars, we do not wish to jeopardize our institutional image under any circumstances.''