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Brazil Petrochemicals Report Q3 2010
Business Monitor International, June 2010, Pages: 57
This Brazil Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's petrochemicals industry.
Confidence is so high in Brazil that petrochemicals consuming industries are turning their attention from exports to focus on the local market, which should insulate the industry from any double-dip recession in key export markets, according to BMI’s latest Brazil Petrochemicals Report. BMI believes that restocking and recovery in demand in both domestic and external markets should help lift capacity utilisation rates to 95% in 2010, raising output by around 15% compared to an estimated -5% in 2009. There are also long-term commitments to infrastructural spending that should ensure that petrochemicals segments tied to construction, particularly PVC, grow at a sustained rate above that of economic growth.
In February 2010, Banco do Brasil stated that BRL160bn (US$85bn) in financing would be required over the decade for infrastructure projects. This is being driven by investment in preparation for the 2014 FIFA World Cup and the 2016 Olympic Games. Alongside these events are the government’s plans in general to boost infrastructure, through the Programa de Aceleração do Crescimento (PAC). The initial PAC is in its last year, however, the current President, Luiz Inacio Lula da Silva, is working on a new PAC - PAC II, to take over in 2011 and run to 2014. These programmes will be more than enough to support the domestic petrochemicals industry and could also boost Brazilian petrochemicals imports. Another important petrochemicals market, the automotive industry, is also set to grow rapidly over the next five years, due in large part to surging domestic demand. Carmakers are set to invest US$11.2bn in Brazil over the next two years, according to estimates from the National Association of Motor Vehicle Manufacturers (Anfavea). In H110, car production surged in line with the expansion of the domestic market, securing optimism in the sector that should spill over into the plastics industry. The same consumer trends that are fuelling growth in the automotive sector are also evident in packaging and household goods production, which endured a poor performance in 2009.
Other factors that will boost the Brazilian petrochemicals industry are the decline in US supply and the depreciation of the Brazilian real, which has bolstered competitiveness. These have helped reduce the proportion of imports on the domestic market. On the downside, with inflationary forces emerging in the Brazilian economy, interest rates are being raised and could dampen demand growth in the domestic market. Brazil is likely to end 2010 with the Selic rate at 11.75%, up 300 basis points since the beginning of the year. Yet, the monetary tightening is unlikely to lead to a market contraction or lower run rates in the petrochemicals industry. Investments in the production of industrial chemicals in Brazil are expected to total at least US$26bn in 2010-2014. Rio de Janeiro state will receive the highest amount, with US$9.17bn, most of which will go to the Comperj petrochemical complex. In Minas General, projects will total US$3.53bn, in São Paulo US$3.14bn, in Bahia US$1.54bn and in Pernambuco US$1.23bn. Under Associação Brasileira da Indústria Química’s (Abiquim, Brazilian Chemicals Industry Association) proposed national chemical industry plan, released in December 2009, the sector will require US$132bn in investments up to 2020 in order to continue growing in line with the country’s GDP and eliminate the trade deficit. The strengthening of productive chains, increasing innovation and technological development and boosting productivity and sustainability are some of the commitments made by the chemical industry.
Brazil is placed third in the Americas Petrochemicals Business Environment Rankings with a composite score of 64.8 points, up 0.6 points due to improved country risk scores. While it has a relatively large petrochemicals industry, Brazil’s score is weighed down by a higher level of risk than most other countries in the region, with its long-term financial market risk a notable cause of concern. Brazil’s only chance to climb the rankings and overtake Canada is if the latter reduces its capacities, which is a distinct possibility as the Canadian petrochemicals industry struggles to compete in the global market and the US market remains in the doldrums.
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