09 November 2012 11:45 [Source: ICB]
The president of Abiplast, Jose Ricardo Roriz Coelho, talks about the plastic industry's performance in 2012, the challenges facing the sector, and his projections leading up to the World Cup and Summer Olympics
The baton has been passed to Brazeil for the 2016 Olympics, and plastics producers are sure to benefit
However, high production and raw material costs and a hefty tax burden weigh heavily on the country's plastics industry and reduce its ability to compete in the global market. Those factors open the door to more imports of plastic products, and make it difficult for the sector to export domestically produced items.
Brazilian plastics association Abiplast (Associacao Brasileira da Industria do Plastico) was created 45 years ago to represent the plastics industry and work to promote the use of plastics in different segments. The organisation represents over 11,500 plastic manufacturing companies in Brazil and about 350,000 employees.
Abiplast president Jose Ricardo Roriz Coelho says that production of processed plastics in the first half of 2012 was 3.5% lower than in the same period in 2011.
"Production picked up in July and August, and our expectation is that this improvement will be maintained throughout the second half of 2012, and that total production for 2012 will at least be on a level with 2011," he said.
"In terms of domestic demand, we will see a 6% increase in the consumption of processed plastics in 2012. This increase in demand has been met by imports that have grown by around 7% this year," says Coelho.
Almost 85% of Brazil's processed plastics companies are concentrated in the south and southeast of Brazil. The state of Sao Paulo accounts for 45% of the 11,500 companies Abiplast represents, followed by Rio Grande do Sul (11.2%) and Santa Catarina (8.3%).
Coelho points out that in the first eight months of 2012, imports of processed plastics increased by 7%, while exports decreased by 11%. Assuming this trend remains the same for the rest of the year, then Brazil will have a commercial trade deficit in processed plastics of approximately $2.3bn (€1.78bn), he said.
Coelho also commented on the effect of imports on growth in the domestic sector.
Brazilian producers are losing ground to imported goods, evident in the fall of domestic production and the increase in processed plastics consumption, he says. In 2007, imports of processed plastics represented 9.5% of the market; today that figure is 12%, which equates to a 26% increase of imported products into the domestic consumer market.
"This increase in the level of imports is a consequence of the lack of competitiveness of the domestic industry, mainly related to high production costs in Brazil. In order to change this situation, we need to create a more competitive environment through an industrial policy aimed at boosting the national industry and reducing the tax burden," says Coelho.
The Brazilian government recently announced plans to raise Brazil's import taxes on a number of petrochemical products, including polyethylene (PE), which represents 43% of the total raw materials used by the plastics industry. Only one company manufactures PE in Brazil, and its only competitor is the international market. The increased quota for these products reduces competition and the effects will be seen in the price of raw materials.
GOVERNMENT STIMULUS IN BRAZIL
"The Brazilian government has authorised a series of measures through its 'Plano Brasil Maior' (the Bigger Brazil Plan) that aims to stimulate Brazilian industry. However, further measures are required to improve the competitive nature of Brazilian industry," Coelho said. "Among the measures that can be adopted to improve the operating conditions of the industry are tax cuts and the extension of the deadline for paying taxes to match the tax payment, thus relieving companies' financial burden, as well as actions to stimulate lending, such as the reduction of long-term interest rates and reducing the spread of public banks to stimulate investment in small and micro- enterprises."
"In specific terms, in order to stimulate the competitiveness of processed plastics in Brazil, it is important that the industrial sector be given equality of IPI tax (excise tax) between resins and processed plastics. Resins are currently taxed at 5% and processed plastics by 15%. It is important to increase the use of margins of preference in government procurement," Coelho said. "These are some of the measures that will undoubtedly help the competitiveness of Brazilian industry."
After a decade of growth of the middle class in Brazil, the country has experienced a significant change in the composition of its population in terms of social class. In 2003, the middle class comprised 66m people; by 2011, this had jumped to 106m, an increase of 61%. Over the same period, those in the higher social classes grew to 23m from 13m, an increase of 77%. This expansion was mainly due to the growth in jobs and wages and the increase in the average income of all social classes, he says.
Coelho adds: "This demographic shift has driven consumption levels and provided opportunities for the processed plastics industry. For example, the increase in demand for plastics for the food and beverage industries has contributed to improvements in plastic packaging technology. This means that Brazil now has an opportunity to become a major exporter not only of agricultural products, but of processed and packaged foods as well."
The increase in demand for cars also benefits the plastics sector. Car manufacturers are increasingly turning to lightweight plastics with improved mechanical performance properties and appearance for automobile parts and components. "It is important to emphasise that in order for this increase in consumption to be sustainable, we must have a strong domestic industry, with an environment that encourages investment and competition," he said.
The outlook for 2013 suggests that GDP and domestic industrial production are expected to grow by 4%, adds Coelho. Optimism is reflected in the processed plastics sector; it is estimated that the demand for processed plastics will grow by around 6%. "We are also counting on a boost in domestic production levels of around 4% compared to 2012. However, imports of processed plastics are also set to increase their penetration of the domestic market from 12% to 14% in 2013," he says.
Brazil's hosting of the World Cup in 2014 and the Summer Olympics in 2016 is stimulating the production and consumption of plastics, both in relation to infrastructure such as stadium seating, building works and water supply infrastructure, and products that will be consumed during the events themselves - flags, toys, cups, food packaging and promotional products.
"The demand for all these products represents a fantastic opportunity for the processed plastics industry," says Coelho.
To find out more about the performance of Brazil's plastics industry and the work of Abiplast, visit www.abiplast.org.br
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