Feiplastic '19: Brazil’s Braskem faces competition from PE, PP imports

Author: George Martin

2019/04/24

SAO PAULO (ICIS)--Brazil’s Braskem is facing heavy competition from polyethylene (PE) and polypropylene (PP) imports, while trying to keep good results for its sale discussions with LyondellBasell, market participants in Brazil said on the sidelines of this year’s Feiplastic.

At a time when feedstock prices are down in benchmark US Gulf markets, currency exchange pressures are pushing Braskem to increase domestic PE and PP prices, at the risk of losing market share.

In PE markets, aggressive offers from an oversupplied US Gulf and from Argentina are putting pressure on local prices. Long PE inventories in the US Gulf have generated intense competition among existing and new suppliers to place volumes in Latin America.

The still unresolved trade war with China has made alternative markets more important to US producers seeking to reduce bulging PE inventories. New production will continue to come on line this year and next.

Argentina is having a low-demand situation resulting from currency depreciation, inflation and high interest rates that have eroded consumers’ buying power. Dow has become an important supplier in Brazil and is competing on price, according to local buyers.

In PP markets, regional producers such as Colombia’s Esenttia and Argentina’s Petrocuyo are eroding Braskem’s market share and forcing the local producer to compete on price. High import tariffs do not apply to these sellers because of Mercosur (Argentina) or bilateral agreement (Colombia).

Petrocuyo was the largest supplier of imported material into Brazil in 2018, with about 100,000 tonnes. Esenttia was close with about 75,000 tonnes. These figures show how important imports are to the Brazilian domestic market, and how big a problem those numbers can be for Braskem.

Product from Asia and the Arab Gulf is also in the mix, but the tariffs they could pay in Brazil act as a deterrent, depending on the circumstances of every supplier.

All of these importers are seeking to have continuity of presence in Brazil. They seek to avoid being seen only as an occasional spot supplier and, in order to solidify their presence, they are exerting pressure on domestic prices.

There are ongoing initiatives by the local producer to increase PE and PP prices in Brazil that are clashing with the proliferation of imports for these two resins.

Braskem must decide whether protecting market share is more important than defending production margins, at a time when negotiations continue for the sale of the company to LyondellBasell.

There is silence about the status of these negotiations, but the consensus of local observers suggests that the sale is still on, although no one can predict a timeline.

In the meantime, Braskem is having important discussions with its clients about prices and application of potential discounts to high-volume players, while keeping an eye on import statistics.

PE is the most widely used plastic in the world, primarily found in packaging including plastic bags, plastic films and geomembranes.

Polypropylene (PP) is used for packaging, ropes, carpets, plastic parts, loudspeakers and automotive parts.

Feira Internacional do Plastico (Feiplastic) takes place on 22-26 April in Sao Paulo, Brazil.

Focus article by George Martin