SÃO PAULO, BRAZIL (April 7, 9:30 a.m. EDT) — Houston-based Ico Polymers Inc. is getting ready to double the size of its 1-year-old Brazilian compounding plant because it is seeing strong growth in the country's rotational molding market.
Ico is part of a wave of foreign interest in the sector. Machinery manufacturer Caccia Engineering SpA of Samarate, Italy, in January started manufacturing rotomolding machines and other equipment in Brazil in a new factory, and U.S. firm Reduction Engineering Inc. invested in a local supplier of rotational molding equipment and started production last year.
Industry estimates say the country's small rotomolding market is growing 10-15 percent a year, fueled by demand for residential water tanks and agricultural equipment.
While long-term prospects are good because the business has relatively low capital costs, several industry officials said the market has slowed on concerns about the conflict in Iraq and rapidly rising resin prices. Resin producer Politeno IndÃºstria e Comercio SA, which supplies 85 percent of the market for PE rotomolding resins in Brazil, said prices are up 80 percent since August.
Still, Ico has found that its new, $3 million compounding plant already is at about 50 percent of capacity, and considers that “the chances of reaching full capacity this year are growing day by day,” said Glenn Iken, managing director of Ico Polymers do Brasil Ltda. in Contagem, Brazil.
The company plans to spend another $1 million to double its capacity, which is currently at 26.5 million pounds a year. The market is moving from in-house dry blending of materials to buying compounds, Iken said.
“The economy of Brazil is stable right now,” he said during an interview at the Brasilplast 2003 trade show, held March 10-14 in SÃ£o Paulo. “The prices of resin are high right now because of oil prices moving up. We expect this whole thing to be stable after this whole Iraq business is finished, hopefully.”
Brazil's rotomolding market remains small, with between 48.5 million and 66.1 million pounds of resin used annually in a country with 175 million people, according to industry estimates. That compares with a market of 914.9 million pounds in the United States, which has 285 million people. But Brazil's market is growing rapidly — it used about 11 million pounds a year in the mid-1990s.
Agricultural products, which account for about 22 percent of Brazil's rotomolding market, are expected to grow because Brazil's new president, Luiz Inacio Lula da Silva, is putting money into hunger programs, said Vicente Aparecido Silva, development and technical service engineer with SÃ£o Paulo-based Politeno.
Water tanks account for about 40 percent of the market in Brazil and have accounted for the bulk of the industry's growth to date. While some officials said they see the water tank market as relatively mature, they said they also expect growth in kayaks, toys, septic tanks, portable milk con-tainers and insulated bins for storing fish.
“There are a lot of markets where we see a lot of potential,” Iken said.
Caccia opened its small facility in the city of Americana, about 70 miles outside SÃ£o Paulo. The Caccia Rotomec Ltda. subsidiary employs five, assembling rotomolding machines and equipment to mix blends of PVC for rotomolding.
The firm set up operations because it wanted more technical support, and because the Brazilian tariff on rotomolding equipment is 19 percent, said Andrea Ferro, an engineer with the Caccia. About 80 percent of its rotomolding machines are locally made, with the rest of the parts imported from Italy, he said.
“For us, this is a very big, interesting market,” Ferro said.
Equipment supplier Reduction Engineering began producing its own pulverizing systems and rotational molding equipment at a joint venture in Brazil last year, said Carlos Garcia, product manager for the Kent, Ohio, firm.
The joint venture, called Rotoline, employs about 15 people at a factory in Santa Catarina, he said. Reduction owns 75 percent, and Brazilian entrepreneur Washington DeLuccas owns the rest. While about half of the business is exported, Brazil's rotomolding market also is strong, Garcia said.
“It is going to be growing steadily, at least 12 percent a year, for the next five years,” he said.
Some U.S. equipment suppliers are more wary of producing in Brazil. Terry Gillian, vice president of sales for rotomolding machine maker Ferry Industries Inc., said the company is expanding its market in Brazil but has no plans to manufacture there.
“The uncertainty in the world has flattened the market” around the world, Gillian said.
Still, several industry officials said the very strong dollar is causing North American rotational molders to look seriously in Brazil, as have their equipment and material suppliers. The U.S. dollar is worth about three times what it was in 1998, compared to Brazil's real.
“We see a lot of foreign people coming in to invest in the rotomolding industry right now because Brazil has a very favorable exchange rate,” Iken said. “It is very favorable to invest here and export overseas.”