APLA: A chance to diversify

Brazil should produce more value added products, says Gabriel Gomes, head of the chemical industry department at BNDES and a speaker at this year’s APLA conference

Brazil’s recent efforts to boost the competitiveness of its industrial sector through a series of stimulus measures have been cautiously welcomed by chemical industry groups. The government initiatives, which have included subsidised lending and tax reductions, are an attempt to revive lagging economic growth and give manufacturers a fighting chance in the face of fierce competition from abroad.

However, the high price of raw materials continues to weigh heavily on domestic chemical producers – reflected in the increased market share of imports.

According to Gabriel Gomes, head of the chemical industry department at Brazil’s ­development bank BNDES, basic petrochemicals and commodities are more vulnerable to the competition of low-cost imports. For this reason, he argues the sector should diversify to produce more specialties and value added products that are closer to the consumer ­markets.

“Opportunities for diversification exist in Brazil because the domestic market for final products has been growing and getting more sophisticated,” Gomes says, drawing attention to rising demand for specialty chemicals in Brazil’s food, automobile and construction industries. “These specialties have higher added value, better margins and can also contribute to the performance of basic chemicals that could be used as feedstock and consumed in Brazil, instead of being exported with lower margins.”

MAJOR STUDY BY BAIN
BNDES recently commissioned a major study – carried out by the Bain and Gas Energy consortium – into the diversification of the Brazilian chemical industry. The study, which excluded thermoplastic resins, fertilisers and pharmaceutical products, identified and evaluated numerous opportunities to invest in Brazil, and proposed instruments and actions to build an agenda of industrial policy for the chemical sector.

“In some segments, like cosmetics, agrochemicals and chemicals for oil extraction and production, the size, growth and sophistication of the Brazilian market are the main drivers to invest,” Gomes says. “In others, like food and feed chemicals, perfumes and ­fragrances, and chemicals from pulp, the main driver is the availability of competitive raw materials.”

The executive also highlighted opportunities for investment in chemicals that are not produced directly from gas, like C4s and aromatics derivatives – products unaffected by cheaper gas feedstocks in the US.

Another sector that Gomes believes has huge potential is renewably sourced chemicals from sugars and biomass. “This is an area that is very active and where Brazil has a solid comparative advantage,” Gomes says. “Not only are there low cost raw materials here, but there are also more than 400 sugarcane mills in the country that can contribute to, and profit from, the integration within the production of chemicals, sugar and ethanol. We are already seeing many investments in renewably sourced chemicals, and this trend shall increase in the coming years.”

BNDES, which has played a fundamental role in stimulating the expansion of industry and infrastructure in Brazil, offers a number of financial support mechanisms to Brazilian companies of all sizes. The chemical industry is supported through direct credit disbursements, which in the last three years have been between Brazilian reais (R) 2bn to R3bn/year ($821m/year), Gomes says.

BNDES also provides equity through ­direct participation, as in the case of ­GranBio. The Bank’s investment arm, BNDESPar, recently became a minority shareholder in the ­Brazilian biotech firm, and has also provided funding for its 82m litre/year second-­generation (2G) ethanol plant in ­northeast Brazil, which began ­operations in September.

The Bank has also renewed Proplastico, a programme that provides ­credit for medium and large-sized plastic processing companies to invest in new capacity, ­modernisation and consolidation. Gomes says the idea is “to help the industry grow and stimulate the creation of competitive plastics companies, enabling them to compete in the ­domestic and international ­markets.”

According to the executive, the long-term outlook for Brazil’s chemical industry is positive. State-run energy company Petrobras is investing heavily in the exploration and production of Brazil’s massive offshore pre-salt oil and gas formation, with production of natural gas also set to rise in the coming years. This investment could lead to a “new scenario of availability of competitive raw materials for the industry”, which in turn “should enhance the competitiveness of local basic ­petrochemicals”.