Brazil, known for being the ninth largest economy globally, is also home to the eighth largest chemical industry, which has witnessed substantial growth since the early 2000s alongside the country’s increasing global stature. Marcos de Marchi, Chairman of the Board of Directors at Abiquim, the national trade association for the chemical industry, highlights Brazil’s appeal as a natural destination for the chemical industry due to its abundant resources, including oil, gas, minerals, rare earths, and biodiversity.

The chemical industry in Brazil boasts annual net sales of $113.5 billion from domestic production, making it the third-largest industrial sector in the country and contributing to 10% of the overall industrial GDP. Furthermore, it supports a significant portion of the workforce, with 2 million jobs along the entire chemical value chain and 400,000 direct jobs. While the recession has undoubtedly impacted the industry’s performance, it has been on a path to recovery since 2016, even during a time when the economy was still experiencing a freefall. Sales from local production dipped from $156.7 billion in 2014 to $112.4 billion in 2015 but slightly rebounded to $113.5 billion in 2016, primarily due to the devaluation of the Real, which made local production more competitive. Consequently, imports experienced a steady decline from $46.1 billion in 2014 to $34.2 billion in 2016, although the recession-induced drop in domestic demand also played a significant role.

One of the distinguishing factors of Brazil’s chemical sector is its strengths in renewable chemicals, agrochemicals, and cosmetics. The country is the second-largest producer of ethanol fuels globally, following the United States, allowing drivers in Brazil to easily fuel their cars with ethanol at gas stations. Mauricio Adade, President of Latin America at DSM, a life sciences and specialty chemical producer, acknowledges Brazil’s immense potential in biomass and highlights the widespread use of bioethanol in the country. Braskem, Brazil’s petrochemical stalwart, has been operating a green ethylene plant in the Triunfo Petrochemical Complex since 2010, establishing itself as a leader in this field.

Moreover, Brazil holds significant market power in vital chemical application sectors. It commands nearly 10% of the global cosmetics market, over 20% of the agrochemicals market, and has witnessed rapid growth in oil and gas exploration, expanding at a rate of almost 25% between 2007 and 2012. Adriano Magalhães, Managing Director of specialty chemical producer Wacker, emphasizes the industry’s bright prospects, particularly in sectors such as pulp and paper, agrochemicals, and cosmetics, which have prompted investments in new capacity and application labs.

The agricultural sector in Brazil is projected to grow between 9% and 11% this year, far surpassing the growth rate of the overall economy. Brazil’s dominance in the pulp and paper industry is also notable, attributed to low wood costs, available land, and a favorable climate. The country’s competitiveness in the food additives for animals market is well recognized, with Brazil accounting for 10% of the global market and serving as one of the world’s top meat exporters.

Brazil’s reputation for innovation, along with its link to the specialty chemical industry, has garnered praise. Eric Schmitt, CEO of Arkema Quimica (Brazil), the Brazilian subsidiary of a global manufacturer in specialty chemicals and advanced materials headquartered in France, acknowledges Brazil’s advanced industry compared to other emerging countries. He highlights the country’s ability to produce large aircraft and its openness to adopting new technologies, even surpassing some developed countries.

In terms of market structure, Brazilian chemical companies hold prominent positions in South America, with Mexico and Argentina being the only countries approaching their scale. Industrial chemicals account for nearly 55% of local production based on net sales, followed by fertilizers, which make up 12.6% and play a crucial role in Brazil’s thriving agricultural sector. The remaining share consists of specialty chemicals used across a diverse set of industries.

Petrobras, the state-owned company that holds a 64% stake, plays a vital role in the upstream side of Brazil’s chemicals market. Petrobras, in turn, owns 47% of Braskem, while Odebrecht, a Brazilian conglomerate active in engineering, construction, infrastructure, real estate, and energy, holds a 50.1% stake. Braskem stands as the largest producer of thermoplastic resins in the Americas. Further down the supply chain, Brazilian companies continue to lead, with Unigel being Latin America’s top producer of acrylics and styrenics.

In the specialty chemical segment, Brazil hosts numerous producers catering to various industries such as food, pharmaceuticals, agriculture, and cosmetics. Notably, many specialty producers operate as subsidiaries of international giants like Eastman, Arkema, Croda, Huntsman, DSM, and Rhodia Solvay. Abiquim, with 191 members representing approximately 90% of Brazil’s chemicals market, supports the country’s chemical producers and actively promotes competitiveness and sustainable development in chemical production.

The industry’s growth is further facilitated by a large number of distributors and logistics providers. Major international distributors like Univar, Brenntag, and IMCD have established a presence in Brazil, while the market includes numerous local players, including family-owned companies and major distributors like MCassab and quanitQ, Brazil’s largest chemical distributor. Associquim serves as the national trade body for chemical distributors in Brazil, safeguarding the interests of its 90 members.

Logistics providers in Brazil encompass both multinational and local players. Companies such as BDP International, Den Hartogh, Leschaco, and Stolthaven Nielsen offer a range of services, including third-party logistics, trade line consolidation, and storage solutions. Local players like Ultracargo, a liquid storage company and part of the Brazilian conglomerate Ultra, which also owns chemical intermediaries player Oxiteno, are significant players in the market.

Brazil’s chemical industry, with its growth, market structure, and potential, continues to shape the country’s economy and contribute to its global standing. Abiquim remains committed to fostering competitiveness, sustainability, and development in Brazil’s chemical production, ensuring a prosperous future for the industry.

Brazil’s Chemical Industry: Overcoming Challenges for Future Success

Brazil’s chemical industry, despite its significant growth and potential, faces a set of challenges that hinder its competitiveness and overall success. The trade deficit in the sector is a key concern, with the deficit increasing from US$1.5 billion in 1991 to US$22 billion in 2016. Before the recession, the deficit reached a staggering US$32 billion. Marcos de Marchi explains that Brazil imports US$43 billion worth of chemicals annually, accounting for 35.6% of local demand, while still maintaining a significant idle capacity of 21%.

Competitiveness issues lie at the heart of the trade deficit and underutilized capacity. The high costs of oil and gas feedstocks pose a major obstacle to the industry’s success, but the challenges go beyond this factor. Marchi emphasizes that competitive raw materials and energy, alongside good infrastructure, logistics, research and development (R&D) investment, and labor training, are crucial prerequisites for a thriving industry. Unfortunately, Brazil falls short in all these aspects, leading to its lack of competitiveness.

Infrastructure emerges as a significant headache for the chemical industry in Brazil. Insufficient berthing capacity at ports results in delays and financial losses for companies. Unigel alone suffered a loss of US$4 million over seven months due to this issue. However, the country’s infrastructure challenges extend beyond port capacity.

Recognizing the considerable trade deficit in chemicals and its detrimental impact on the competitiveness of local industry, the Brazilian Development Bank (BNDES) commissioned Bain & Company, a consulting firm, to conduct a report in 2014. The report aimed to identify the sources of the deficit and propose solutions to address it. Bain identified fertilizers, cosmetics and personal care products, agrochemicals, food additives for animals, and chemicals for exploration and production as segments with significant import quantities but also great potential for improvement in local production due to Brazil’s competitiveness in these areas.

Bain’s recommendations included allocating a portion of Brazil’s pre-salt oil and gas reserves to the competitive segments of the chemical industry, improving the regulatory environment, investing in chemicals derived from biomass, funding infrastructure projects that benefit the chemical industry, increasing focus on R&D to address technological challenges in these segments, and simplifying the tax system.

While some progress has been made in certain areas, such as the passage of a law in 2015 to encourage the exploitation of biodiversity, advancements in other areas have stalled. Rodrigo Mas, a partner at Bain & Company and the lead author of the report, highlights the need to bring these proposals back to the government’s agenda. The focus of the industry, BNDES, and the government has been diluted amidst the economic and political crises. It is crucial to revive this focus and prioritize the necessary measures as Brazil’s chemical industry aims to become a global leader once again.