Brazil PET laments disappointing summer

Cooler weather has prompted many consumers to stay indoors instead of hitting the beach, which has pushed down plastic bottle demand. An aerial view shows work at Petroquimica Suape’s complex in Ipojuca, Brazil. (Image: PQS)

HOUSTON (ICIS)–In Brazil, summer is coming to a close. Brazilians are hunkering down for the fall, which starts in March, and preparing for winter, which begins in June.

Participants in the polyethylene terephthalate (PET) market, however, are preparing for a realisation period of lost profits and tighter margins from a summer season that has been disappointing.

Cooler-than-normal weather, market oversupply and an early Carnival holiday put a damper on the Brazilian PET sector.

Summer is when PET producers attempt to increase margins on their product, as consumption increases.

But the weather this year has been cooler and wetter than usual, prompting many Brazilians to stay indoors instead of hitting the beaches, pushing down plastic bottle demand.

“The market is bad,” a PET producer matter-of-factly said on Tuesday. “Demand has not been as good as expected, and everyone has been overstocked.”

Buyers and pre-form makers purchased material ahead of summer, in anticipation of price increases. As demand fell, they were left with excess inventory. That, in turn, left producers with excess material as well.

Like many PET markets, Brazil is dealing with oversupply. Consumption sits at about 620,000 tonnes/year. Capacity between two large producers and one small one is at 1.09m tonnes/year. That’s an oversupply of 389,000 tonnes in the market of domestically produced material.

It does not include imported material, which would push oversupply numbers even higher.

To make up for this oversupply, Brazil producers have been exporting more material, mainly to the US, Colombia and Venezuela.

It is likely that producers will have to ramp up export activity in order to make up for a disappointing season, and lost margins.

Many in the Brazil PET supply chain are disappointed at summer sales, and said the next two months could be difficult.

A pre-form maker said that, although business saw a slight uptick in the summer, demand still remains fairly flat.

“I think it is primarily the weather,” the source said. “We have more inventory than we should have this time of year,” the source said. “I have quite a bit of inventory in [the] Manaus [Brazil] plant and the Sao Paulo plant.”

The source said their location near producers allows for expedited delivery of material. Because of this, they only keep a day or so worth of inventory on hand.

In addition to the weather, Carnival celebrations came early this year. PET demand usually spikes ahead of Carnival, and suppliers gear up for celebrations. But this year’s earlier celebrations meant that suppliers already had material on hand from the previous month.

Furthermore, Brazil’s economy continues to struggle.

Sources were blunt about what the next few months held in the Brazil PET market.

“It’s going to be tough,” a source said. “Summer will be over soon, Carnival is gone, the economy is not improving. And then we will be in winter.”

Focus article by Andrew Guy

(PHOTO: Design Pics Inc/REX Shutterstock)