SÃO PAULO — Brazil's currency devaluation against the U.S. dollar is helping national machinery producers become more competitive and boost exports.
But international sales alone won't compensate for the steep drop expected this year in domestic demand, as plastic processing companies struggle to finance equipment and cope with rising output costs.
Brazil's National Development Bank (BNDES), which plays a key role in financing investment by domestic plastics processing companies, raised rates for some loans this year to reduce expenses, in response to tighter fiscal policy.
There was no formal announcement of a reduction in the bank's budget for the plastics industry, but approval of loans this year is slower than it used to be, said Gino Paulucci Jr., vice-president of Brazil's trade association for the machinery industry, the São Paulo-based Abimaq.
“We have news that this is happening frequently this year,” Paulucci said in an interview at Feiplastic 2015 in São Paulo, which took place May 4-8.
BNDES finances machinery purchases indirectly through intermediary commercial banks. Those banks assume the risk, accept or reject credit applications, and are also restricting lending this year, leaving plastics companies with nowhere to turn for financing, said Paulucci, who's also a director at Polimáquinas Indústria e Comércio Lta., a Bauru, Brazil-based machinery manufacturer for the plastics packaging industry.
BNDES President Luciano Coutinho, who spoke at the Feiplastic opening ceremony, said the national bank was willing to talk to plastics industry leaders about alternatives to the current credit shortage.
“It's the viability of the plastics chain that ensures the viability of the entire petrochemical complex in the country,” he said. “Without a competitive capacity in the final processing chain, the whole system of competitiveness is at risk.”
While conditions for domestic sales worsen, the U.S. dollar's appreciation has increased Brazilian machinery manufacturers' ability to compete in international markets.
However, the devaluation of Brazil's currency, the real, hasn't fully offset the increase in output costs as inflation soars, Paulucci said. The real has dropped about 50 percent in value against the dollar in the last two years.
Most potential clients at Feiplastic interested in new machinery from Polimáquinas were foreigners, Paulucci added.
“Oddly, different from what is being said, all the countries neighboring Brazil are doing good [in demand for new plastics machinery],” he said. “Argentina is buying a lot, as well as Mexico, Chile, Peru and Colombia.”
Eighty percent of Polimáquinas production was exported in February, and Paulucci expects international sales to account for a much bigger slice of its total production this year in comparison with 20 percent last year.
Paulucci said domestic clients still order machines, but are not completing purchases because of financing restrictions.
Brazilian injection molding machinery group Indústrias Romi SA has also seen an increase in international interest for its machines, as the dollar appreciation helped their product became more competitive.
“Some say: your machine is expensive, but now that the dollar is appreciated, let's talk,” said William dos Reis, Romi's director of plastic processing machines.
Santa Bárbara d'Oeste-based Romi said new orders in its plastics machinery unit fell 22.8 percent in the first quarter of 20115, compared with 2014, and operating sales dropping 13.2 percent.
While a stronger dollar helps Brazil's machinery sector, it's hurting plastics processors when it comes to acquiring raw materials, because Brazilian producers still import a majority of their resins and naphtha.
Plastic processors also can't transfer those rising costs into their sales price fast enough to match inflation, which is slowing consumer demand.
“Regarding raw materials, the processing industry has no gain with dollar valuation. On the contrary, when the dollar appreciates, we immediately suffer with rising costs but we have no counterpart in revenue,” said José Ricardo Roriz, president of Brazil's plastics industry trade association, Abiplast, in São Paulo.
In addition to the currency challenge, Brazilian processors are facing a 40 percent rise in energy prices since 2014, as well as an increase in labor costs as the government cuts payroll tax incentives.