SAO PAULO, BRAZIL — Brazil's 45 percent interest rates make it hard for plastic processors to buy new equipment, and now the Brazilian machinery trade group is lobbying the government for relief.
High interest rates are a big issue in this country. At Brasilplast'99, held March 8-13 in SÃo Paulo, Brazilian machinery exhibitors said lots of customers were kicking the tires but holding off on purchases until interest rates come down. It was a bleaker story for U.S. and European importers, because a dirt-cheap Brazilian real has priced them out of the market.
Francisco Semeraro, president of CSMAIP, the machinery association, said the government needs to give companies that buy new machines financing assistance and tax breaks.
``From the point of view of the bank, if you lease a machine, or a car, or an air-conditioning system, there is no preferential level of interest rates. The banking is exactly the same,'' Semeraro said.
In Brazil, where the average age of a machine is 10 years, molders desperately need to upgrade.
``From my point of view, the Brazilian government will have to do some different criteria when a company is buying machines. Because when a company buys machines, it is preparing itself to hire people, and to train people,'' Semeraro said.
According to CSMAIP, there are seven firms making injection molding machines in Brazil, but only four of those are in active production. Brazilian processors buy about 1,000 injection presses a year. A few hundred of those are very simple machines for making shoe soles and other basic products, Semeraro said.
The annual market for blow molding machines runs about 350-400 units. Extruder sales are about 300, down from 400 in recent years.
As usual in Brazil, change is the only constant. The machinery sector was swept along with big-picture economic changes buffeting Brazil.
At Brasilplast two years ago, local machinery manufacturers boasted that they were buying an unprecedented number of foreign components. But the devaluation effectively doubled the price of imported components, so local machinery companies are rethinking that strategy.
``In one day, things turned upside down,'' said Semeraro, who, with his brother Nelson Semeraro, owns IrmaÃos Semeraro Ltda. The firm makes Uniloy-brand blow molders for Milacron Inc. and components for a new injection press factory in Brazil run by Sandretto Industrie SpA of Turin, Italy.
The now-cheap real is spurring machine manufacturers to buy more parts from suppliers in Brazil, or make them in-house. ``Many companies are buying [metalworking] machines to restart Brazilian component production,'' Semeraro said.
But he said companies still have to go outside Brazil for some important — and now very expensive — parts. ``It's a new challenge for machine builders in Brazil: Import components and reduce costs in other areas of the machine, and also improve efficiency,'' he said.
With Brazil officially in a recession, some machinery leaders are gloomy. Ind£strias Romi SA, a leading Brazilian injection press maker, suffered through a 40 percent sales drop in 1998, according to Giordano Romi Jr., director of marketing and sales.
``This year's going to be even worse,'' he said. ``It's going to be a tough year.''
Romi imports half of the components for its machines, he said, and those higher prices hurt.
Even so, U.S. and European companies showing their wares in SÃo Paulo said Brazil-made machines will dominate sales in the near future.
``The demand is still there. People are buying machines — they are just buying local machines,'' said Gerald Wagner, general sales manager for exports at Germany's Battenfeld Kunststoffmaschinen GmbH. In a normal year, Battenfeld sells 150 machines a year in Latin America. Now, the only people buying are connected to multinational projects, such as car production, he said.
Peter Skulski, sales manager at Maguire Products Inc. in Aston, Pa., had time on his hands at Brasilplast. He said selling auxiliary equipment now is ``very, very tough. People are just not spending any money whatsoever.'' Maguire used to average 10 requests for quotes a month from Brazil; today it's more like two or three.
Even though import tariffs continue to decline, Brazil's high taxes combined with the lingering tariffs make selling imports difficult — even before the devaluation, Skulski said.
A 1997 study said U.S. suppliers sold more than $50 million worth of plastics processing machines that year. That made the United States the third-largest exporter to Brazil, behind Germany and Italy, according to the report from the American Consulate in Sao Paulo.
Milacron Inc. of Cincinnati, the largest U.S.-owned plastics machinery company, opened a direct office in 1997 outside of Sao Paulo.
Despite slow sales now, Michael Ferlic, a Brazilian who heads the office, is looking long-term, at a market some 164 million-people strong. ``If [a stable real] helps the economy to grow, there's always going to be opportunities,'' he said.
Davis-Standard Corp. of Pawcatuck, Conn., exhibited at its first Brasilplast.
``When we signed up for the show, nobody told us they were going to devalue the currency a month-and-a-half before the show,'' joked Bob Freedman, international business manager. He said Davis-Standard has done ``reasonably well'' selling to multinationals in Brazil for years.
Exhibiting at the show demonstrates commitment, Freedman said.
``We're investing here now for the future,'' Freedman said.