Brazil's new taxes on cold drinks may dampen PET demand

02 May 2014 21:36 Source:ICIS News

HOUSTON (ICIS)--The Brazil government, as part of efforts to increase tax revenue, has surprised the beverage market by announcing increases in taxes for cold drinks in a move that could raise final costs for products made with polyethylene terephthalate (PET), market sources said on Friday.

The government published this week the new tax information, effective June 1, from the country's official budget and revenue office that could represent an increase in the final cost to consumers of cold drinks of up to 2.25% from the current price, on average.

PET market sources told ICIS on Friday that the higher costs will definitely be immediately transferred to consumers, but the sources did not estimate any potential demand lost.

Representatives of the beer industry association CervBrasil have warned that the minimum impact in final prices at least to beer consumers will be a 5% increase. While beer is not normally packaged in PET in Brazil, other cold drinks from soft drinks to energy beverages will be affected.

PET resin prices in Brazil have been relatively stable in recent months even after the start of the fall, which is the beginning of the colder months of the year in the southern hemisphere and normally leads to lower consumption of cold drinks and weaker PET demand and pricing.

That stability has been a result, in part, of delays by state-owned Petroquimica Suape in starting up its two new PET production lines, market sources have said.

New taxes on sugary drinks were imposed earlier this year in Mexico and represented a 10% increase in the final cost of drinks, many of them packaged in PET. As a result, PET demand there fell. The weak internal PET demand, coupled with lower prices in other regions, has caused two reductions in Mexico PET prices so far this year.

Brazil has currently about 860,000 tonnes/year of capacity to produce PET, which is expected to increase to 1.3m tonnes/year once Suape starts to operate both lines. Most current PET production capacity is owned by Italy-based Mossi & Ghisolfi.

The new capacity will leave Brazil with ample capacity, and prices are expected to drop unless a large part of the new production can successfully compete with Asian product and be exported.

PET prices in Brazil have seen a $25/tonne decline since the start of the year, in part as most of the market tracked declines in PET prices in Asia earlier this year.

Current PET prices in Brazil as assessed by ICIS are $1,865-1,965/tonne DEL (delivered).

By Renzo Pipoli