Brazil, the largest economy in the region, has been facing economic challenges and a slow recovery from a severe recession. After two years of strong contraction in 2015 and 2016, Brazil’s annual growth has been around 1%, which is insufficient to compensate for the previous downturn. However, with the uncertainty surrounding the presidential election now resolved, there is hope for a 2.5% growth rate in 2019. While this indicates some progress, it is still not enough to address Brazil’s high debt-to-GDP ratio, particularly if the country continues its high levels of government spending.

In February 2019, President Jair Bolsonaro presented his proposal for pension reform, which is seen as a crucial element in a broader economic plan to improve Brazil’s public finances. However, the success of the reform depends on securing the support of Congress, as it requires a three-fifths majority in both the Chamber of Deputies and the Federal Senate.

The economic recession and issues related to local competitiveness have negatively impacted Brazil’s chemical industry, which has dropped from being the sixth largest globally to the eighth largest. According to a report from the Brazilian Chemical Industry Association (Abiquim), the trade balance of chemicals recorded a record high deficit of US$4.9 billion in the early months of 2019. Stringent labor and fiscal laws, along with a lack of competitively priced raw materials, have contributed to the industry’s struggles. Imported products currently account for 37% of the Brazilian market, leading to a decline in sales from US$150 billion in 2011 to less than US$120 billion in 2017.

Marina Mattar, the director of Institutional Relations and Sustainability at Abiquim, highlighted various challenges faced by the industry, including high energy and raw material costs, logistical difficulties, and bureaucratic hurdles. The cost of energy in some regions of Brazil is three times higher than in the United States, and transportation costs within the country are also expensive, primarily due to reliance on road transportation. The industry is urging the government to utilize Brazil’s oil and gas resources from pre-salt fields for domestic industrial use rather than relying on raw material exports and finished product imports.

Paulo Guedes, the Minister of Economic Affairs, has shown support for the industry’s concerns, with 70% of logistics proposals from Abiquim’s Strategic Agenda of Logistics being well-received by the new government. The proposals, outlined in the “A Different Future is Possible” report by Abiquim and Deloitte, aim to address barriers to investment and create conditions for stimulating growth in the chemical sector. The report identifies obstacles such as lack of competitiveness, high costs of raw materials, electricity, logistics, and bureaucratic inefficiencies.

The Brazilian government has outlined its strategy to promote private investment and reduce logistics bottlenecks, working in collaboration with BNDES, the national development bank. The government plans to present a shortlist of investment opportunities to the private sector, focusing on merit-based selection rather than prioritizing specific industries. The goal is to increase Brazil’s annual GDP growth from 1.7% to 4% by 2022, as revealed by Diogo Mac Cord de Faria, the National Secretary of Infrastructure Development for the Brazilian Ministry of the Economy, at the APLA Logistics Meeting in São Paulo.

Mark Eramo, vice-president at IHS Markit, emphasized the role of the new Brazilian government in promoting industrial development and attracting investments. With increased hydrocarbon production and existing infrastructure for refining and petrochemicals, Brazil has the potential for growth. The challenge lies in building upon the progress made before the recession and leveraging these advantages to continue developing the economy.

The petrochemical and chemical industry in Brazil, along with the rest of the region, eagerly awaits the outcome of LyondellBasell’s potential acquisition of Braskem. This acquisition, if completed, would grant LyondellBasell access to the Latin American market and potentially require the divestment of some assets due to its size. According to industry experts, this acquisition could have a positive impact on Brazil’s petrochemical industry. In the meantime, Braskem continues to focus on enhancing its competitiveness and diversifying its operations in terms of feedstock and geography. Approximately 50% of Braskem’s turnover now comes from operations outside of Brazil. The company has experienced significant growth in North America, particularly with increased capacity at its U.S. assets. Braskem has also initiated projects in Mexico and Texas to further expand its production capabilities. The company’s plans include the completion of a polypropylene (PP) plant in Houston by the first half of 2020.

Oxiteno, another Brazilian producer, has made substantial investments in the United States. The company recently opened a new plant in Pasadena, Texas, aiming to reduce the reliance on imported products and introduce locally produced goods to the market. While Brazil remains Oxiteno’s largest market, expanding its presence in North America is crucial to its global strategy. Oxiteno aims to achieve over 100,000 tons of sales in the United States within four years. Elekeiroz, a long-standing player in Brazil’s chemical industry, has observed market recovery since the low point in 2016. The company’s optimization efforts at its Camaçari and oxo-gas plants have contributed to its improved performance. Elekeiroz has regained its regular level of activity and attained international competitiveness standards, thanks to favorable economic conditions in 2017.

High gas and energy prices pose significant obstacles for the Brazilian chemical industry in 2019, according to Marcos de Marchi, CEO of Elekeiroz. Gas prices in Brazil have become three times more expensive than those in the United States over the past 15 years. Brazil heavily relies on hydroelectric power, which should theoretically be a cost-effective energy source, but that is not the case due to various factors.

Despite challenging macroeconomic conditions in the region, several chemical producers in Brazil have managed to increase their profits. Eastman, a global company, experienced a 14% revenue growth in the Latin American region from 2017 to 2018. Pedro Fortes, managing director of Eastman Brazil, emphasized the importance of a stable economy for sustainable industry growth. He likened Brazil’s current situation to the plight of the young soccer players trapped in a cave in Thailand in 2018. Just as they needed to leave the cave before becoming better soccer players, Brazil must establish stability before harnessing its enormous potential.

Brazilian chemical companies are actively embracing sustainability initiatives, seeking environmentally friendly solutions to reduce resource consumption. Oxiteno promotes its “Greenformance” concept, encouraging the use of renewable raw materials. Around 26% of Oxiteno’s feedstock now comes from renewable sources. Croda, a specialty chemicals leader, focuses on sustainability through innovation. The company’s site in the United States will produce the first green ethylene oxide (EO) and the largest range of 100% bio-based ECO surfactants worldwide. Braskem expands its “I’m green™” portfolio, highlighting its commitment to renewable chemicals. The company produces green polyethylene from sugarcane ethanol, the world’s first bio-based polymer on an industrial scale.

Quimisa, celebrating its 60th anniversary in 2019, attributes its longevity to a strong focus on innovation and sustainability. The company emphasizes its enzyme segment, which finds applications in various industries, including life sciences, textiles, and water treatment. Quimisa develops sustainable technologies using enzymes to reduce water consumption and increase shelf life for products like grains.

In conclusion, the petrochemical and chemical industry in Brazil is witnessing diversification efforts, expanding into new markets and embracing sustainability. While challenges such as high energy prices persist, companies are finding ways to overcome obstacles and achieve growth. The industry’s future lies in strategic partnerships, innovation, and a favorable economic environment that fosters stability and unlocks Brazil’s vast potential.

The distribution sector in Latin America, including Brazil, is experiencing intense competition. The industry’s reliance on liquidity and stock availability has made companies with greater resources and financial strength more favorable during economic downturns. In such situations, consolidation opportunities arise, and global chemical and ingredients distributor Univar Solutions has capitalized on favorable market conditions for mergers and acquisitions. Univar Solutions entered the Latin American market seven years ago in Brazil and solidified its position with the acquisition of Tagma in September 2017. Jorge Buckup, Univar Solutions’ Latin America president, emphasized the importance of offering customers secure material handling, product availability, market expertise, technical support, and high-level service and digital solutions for distributors to thrive.

While foreign entities have found success in the region, large Brazilian distributors like Química Anastacio have also achieved growth despite domestic instability. Química Anastacio’s CEO, Jan Felix Krueder, attributed their success to a business model designed for continuous growth and a development team focused on introducing new products regularly, diversifying the company’s portfolio. Krueder acknowledged the positive business environment created by the new Brazilian government but highlighted the logistical challenges that hinder competitiveness. He emphasized the need for infrastructure improvements and increased investment, stating that international investors have capital available but lack confidence in the Brazilian economy until effective reforms are implemented.

The logistics deficit in Brazil emerged as a prominent topic at the logistics reunion held by APLA in São Paulo. Vivian Donatiello, manager at ILOS and a guest speaker at the event, highlighted the significant impact of this issue on the Brazilian economy. She cited the introduction of the minimum freight price table as a factor that contributed to the nationwide truck drivers’ strike in May 2018. The law was initially implemented to address the volatility of freight prices, but it led to truckers protesting against the low transport prices imposed by major companies since 2015, exacerbated by the recent increase in diesel prices.

Several factors are contributing to volatility in the distribution sector. However, if Brazil’s logistics deficit persists, it poses a significant threat to the overall industry’s success. The country presents an attractive opportunity for international capital, and the government’s policy reforms will play a crucial role in determining whether it can attract financiers to address the logistical challenges and stimulate growth in the sector.