Brazil’s floods-hit state plastics sector under ‘hypothesis’ operations could normalize end May – trade group

SAO PAULO (ICIS)–Plastics producers in Rio Grande do Sul remain shut following the floods but are working under the “hypothesis” operations could normalize by the end of May, a full month after the floods hit the Brazilian state, trade group Abiplast said.

As such, they have made calculations for losses in revenue during a month, since 29 April when the floods started until the end of May.

According to the trade group, the estimated impact on plastics producers in the state could come up to Brazilian reais (R) 680 million ($132 million), or an estimated daily impact of R$23 million since the floods started on 29 April.

Rio Grande do Sul and its petrochemicals hub in Triunfo, near the city of Porto Alegre, is home to 40% of Brazil’s polyethylene (PE) and polypropylene (PP) production capacities.

Despite the end of May hypothesis, a spokesperson for the trade group conceded that as things stand – with hundreds of roads still blocked and workers unable to turn up for duty – to set a date for restart of operations would be premature, however.

“Plastics transformers’ plant have stopped …The [estimated costs would include the] costs of potential renovations and recovery of assets in the areas degraded,” said Abiplast.

“The main plastic products could also suffer price increases if there is an increase [in selling prices] by manufacturers.”

Several petrochemicals companies based at the Triunfo production hub, near the state’s largest city of Porto Alegre, declared force majeure last week, including Brazil’s polymers major Braskem, Innova and Arlanxeo.

Thai major Indorama’s subsidiary in Brazil said to ICIS it had suspended operations.

Meanwhile, fertilizers players have said to ICIS demand could be hit considering the state’s prowess within Brazil’s large agricultural sector.

Analysts at S&P Global have also said fertilizers could be greatly hit, although they said petrochemicals could be spare from a large impact if the situation normalizes in coming days or weeks, at most.

TRIUNFO: KEY TO PLASTICS
According to figures by Abiplast, Triunfo has production capacities of 740,000 tonnes/year for PP, and of 1.2 million tonnes/year for PE, with a large chunk of that belonging to Braskem, for whom the Triunfo facilities represent 30% of its production capacity in Brazil.

Braskem is the sole manufacturer of polyethylene (PE) and polypropylene (PP). Its market shares in 2023 were about 56% and 70%, respectively, according to figures from the ICIS Supply and Demand Database.

Brazil’s PP capacity is nearly 2 million tonnes/year, while PE capacity is about 3 million tonnes/year, of which 41% is high density polyethylene (HDPE), 33% is linear low density polyethylene (LLDPE) and 26% is low density polyethylene (LDPE).

The Triunfo complex can produce 740,000 tonnes/year of PP, 550,000 tonnes/year of HDPE, 385,000 tonnes/year of LDPE and 300,000 tonnes/year of LLDPE.

The company said last week it was confident it will be able to deliver material from its other sites in the country, but sources have pointed out some of the specialized PE grades are only produced at Triunfo, and feared a hit to supply and increasing prices if the disruption in Rio Grande do Sul prolongs.

According to Abiplast, there are 1,428 plastic processing and recycling companies in Rio Grande do Sul, the second largest state in Brazil in number of plastic processing companies, behind Sao Paulo’s 5,200 companies.

The state’s plastics sector employs 33,100, added the trade group.

Their sales in 2023 stood at R8.2 billion, or 7.1% of the total revenue posted by Brazilian plastics processing industry of R117 billion.

The tragedy has consumed the Brazilian government since the second week of the floods – after a rather slow response during the first days.

Some analysts have described this as Brazilian President Luiz Inacio Lula da Silva’s ‘Katrina moment’ as a reference to the poor handling of the Hurricane Katrina in the US in 2005 by former President George W Bush.

Additional reporting by Bruno Menini

Front page picture: A sign in Sao Paulo calling residents to collaborate in the floods relief effort

Source: Jonathan Lopez/ICIS