Brazil must deepen assistance to chemicals producers, ease gas regulations – Abiquim

SAO PAULO (ICIS)–The Brazilian government must continue supporting beleaguered domestic chemicals producers with changes in natural gas regulations and further protectionist measures, according to the executive president of chemicals trade group Abiquim.

Andre Passos said in some chemicals sub-sectors such as fertilizers industrial plants “are already closing” in Brazil due to high natural gas prices, although Unigel, a major fertilizers in Brazil has recently reverted its decision to shut a large plant.

Passos added that inaction could lead to more chemicals plants closing, adding that competition from foreign material sent to Brazil at low prices continues greatly hurting domestic producers.

Abiquim represents chemicals producers; other parts of the industry such as distributors are not members, and it is distributors who say imports benefit them giving them access to cheaper material.

CABINET HAS HELPED, BUT MORE IS NEEDED
Abiquim’s executive president said the government president by Luiz Inacio Lula da Silva since January “has helped a lot” Brazilian domestic producers, with increases in import tariffs, one in March and one in November, as well as the re-implementation of a tax break for chemicals known as REIQ.

However, more needs to be done to face up to competition from overseas product, said Passos.

Abiquim held its annual meeting on Monday 4 November, with Brazil’s vice president and minister for Industry its star guest.

In his speech to delegates, Geraldo Alckmin said the government is “aware” of the difficulties chemicals producers face and promised to work to reduce natural gas prices as well as the so-called ‘Brazil cost’ of doing business in the country.

“Alckmin does want to help chemicals producers, as shown by the measures passed this year. But the government must intensify these efforts, for example by extend REIQ, which currently covers only basic chemicals and just a few second-generation chemicals,” said Passos.

REIQ lowers the PIS/COFINS tax rates that the chemical industry pays for inputs within the xylenes chain, including naphtha, benzene, propene, ethene, toluene, and cumene.

PIS and COFINS are imposed on the Brazilian entity or individual (the importer of goods or services) and should apply to the import of services at the rates of 1.65% and 7.6%, respectively.

Under REIQ, the PIS/COFINS rate stands at 3.65% overall.

“This must be extended to widen the base of products covered by REIQ. This would just be mirroring moves being done in other countries to protect their chemicals producers,” added Passos.

NATURAL GAS PRICES
Natural gas prices are three or four times higher in Brazil than in the US, the other large producer of chemicals in the Americas, and this situation continues putting a strain on the industry, said Passos.

The government could do more by easing some regulations related to the way oil and gas producers treat their surplus gas.

Abiquim has said that with higher natural gas output in the countries being directed at chemicals, producers could make investments of around Brazilian reais (R) 70bn ($14.1bn) to expand their facilities.

“Alckmin has also created a working group at MDIC [Alckmin’s Ministry of Development, Industry, Trade and Services] exclusively focused on natural gas prices. The government obviously is not a producer of natural gas itself, but it has at its disposal regulatory actions which could lower prices,” said Passos.

“Those regulatory changes would increase supply, and by increasing supply you will obviously lower prices.”

OCTOBER UTILIZATION AT LESS THAN 60%
Passos said Brazilian chemicals producers continue being hit by high levels of imports – Brazil’s chemicals trade deficit is expected at $47bn in 2023 – and added that capacity utilization continued falling in October, the last month data is available for.

To put the figure into context, Brazil’s chemicals sales are expected to close 2023 at $167.4bn, Abiquim said this week.

In a previous interview with ICIS in July, Passos had already warned about increasing imports, especially coming from China, and how that was hurting domestic producers.

“[Since then] Things have not improved in the second half of 2023. Imports for the 70 main chemical products continued rising throughout the year, with capacity utilization averaging 65% in the period January-September,” he said.

“In October, capacity utilization stood at less than 60% – imports are causing great pain for domestic producers, who are the big employers and key to the country’s manufacturing fabric.”

This interview took place in Sao Paulo on 4 December.

Interview article by Jonathan Lopez