Brazil’s chemicals to slow in 2025 amid currency, fiscal deficit woes – Activas CEO

SAO PAULO (ICIS)–Brazil’s chemicals distribution sector posted healthy activity in 2024 as manufacturing finally gained traction, but conditions are set to worsen in 2025 amid high inflation, high borrowing costs, and a government too prone to spend, according to the CEO at Brazilian chemicals distributor Activas.

Laercio Goncalves added that he was not too concerned about the prospect of US tariffs on Brazilian goods – credit ratings agency Moody’s forecasts by mid-2025 the US will impose a 5% general tariff on them – although he lamented “the world is becoming more closed” and protectionist.

Activas employs 150 workers at eight Brazilian sites. In 2024, it posted sales of Brazilian reais (R) 700 million ($118 million), flat year on year.

Goncalves said the company is looking to expand by starting up a ninth distribution facility in Brazil’s south, where it already has a considerable presence with six out of its eight distribution facilities.

Headquartered in Sao Paulo, Activas operates in that state its main facility in Maua and a smaller one in Sao Bernardo do Campo. Four more distribution facilities are in the country’s southern industrious states: Duque de Caxias (main petrochemicals hub in Rio de Janeiro state), Joinville (Santa Catarina), Caxias do Sul (Rio Grande do Sul), and Ibipora (Parana).

In the country’s north, Activas operates two facilities in Cabo de Santo (Pernambuco) and Maceio (Alagoas).

Activas sales	2024	2023	2022	2021
In million R	700	700	750	1,000

‘REALISTIC TARGET’
Goncalves remains committed to bringing Activas back to the R1.0 billion sales mark it posted in 2021, when chemicals prices shot up in the aftermath of the pandemic-induced lockdowns.

He said he is confident the company can achieve that within a few year, but the CEO recognized that the 2021 sales figure was much about inflated prices and not much about actual larger volumes.

“We already reached that level of sales [R1.0 billion] during the pandemic, so this is a realistic goal. For 2024, we had made a conservative business plan and indeed Q1 2024 was a very complicated quarter. At the time, a year ago or so, we were quite pessimistic: economic policy changes at home, wars abroad… everything was skewing the risks downside,” said the CEO.

“So, after drawing up that rather conservative forecast for 2024, we started working internally on how to increase profitability. Sometimes it was reducing volumes of certain products while focusing on the most profitable lines, and by working operationally like that we managed to turn the year around – the second and third quarters were very good.”

Activas, like other Brazilian distributors such as Quimica Anastacio, were able to ride on the manufacturing bonanza in Brazil in 2024, which together with booming agriculture and healthy services propelled GDP growth to around 3.5%. In 2023, GDP had grown by 3.2%.

For 2025, Activas expects its sales could grow above the average growth of 2% expected by the Brazilian chemicals industry overall.

BRAZIL: WRONG WAY
While admitting that Activas and the industry’s performance in general sharply improved in the past two years, which coincided with the first two years of President Luiz Inacio Lula da Silva’s term, Goncalvez leaves no doubt he is not keen on a government he perceives as high spending and too interventionist.

“A left-wing government… overtaxes. It puts the businessman against the wall all the time,” he said, adding that the cabinet should be more focused on propping up industrial investments, rather than tax them.

However, Goncalves not only shows disappointment at Lula economic policy, he widens the criticism to the country’s industrial investment strategies over the past 50 years – or, rather, the lack of them.

Activas’ CEO, despite all the criticism, also gave overriding support to the key measure affecting Brazilian chemicals in 2024, which came from a protectionist measure: the increase in import tariffs for dozens of chemicals, mostly of them from 12.6% to 20%, in October, which are expected to greatly prop up domestic producers’ earnings.

“Import tariffs in Brazil were a highly relevant topic in 2024 and are expected to continue impacting the market in 2025, especially with the application of ADDs [anti-dumping duties] due to oversupply and dumping practices by China. These measures have a positive side, as they protect the national industry, benefiting both producers and local distributors,” said the CEO.

“In the case of Activas, higher import tariffs strengthened our positioning in the domestic market. On the other hand, as we also import some product lines, such as ABS [acrylonitrile butadiene styrene] and PET [polyethylene terephthalate], some of these measures may bring specific challenges to our operation.”

Goncalves said he had also good eyes to the possibility of Braskem’s Novonor controlling stake to be acquired by a consortium of Brazilian banks, with involvment of the country’s state-owned investment bank Bndes, as it would reinforce the Brazilian chemicals industry overall as well as its global footprint.

“As direct partners [Activas is one of Braskem’s official distributors in Brazil], we view this change positively, as we believe that the government’s presence can bring stability and foster strategic investments in areas such as technology and sustainability, benefiting the entire production chain,” said Goncalves.

“In addition, this perspective strengthens the competitiveness of the local industry, creating opportunities for innovation and the development of solutions aligned with the demands of the domestic and foreign markets. We are confident that, with solid governance and a long-term vision, Braskem will continue to play an essential role in the growth of the industry.”

PROTECTIONISM ON THE RISE
While on the one hand Goncalves admitted protectionism is back in the agenda like never before in the past 70 years, he was glad to see public opinion and policy makers delve into “Important discussions” about what industrial fabric countries are willing to have and willing to support in times of global oversupply for many industrial goods.

And, once again, the Activas CEO leaves no doubt about his political preferences from the perspective of businesses and who, in his view, would contribute to a more thriving economy.

“Current global trade policies reflect a changing scenario. The new wave of protectionism, driven by leaders like Trump, has brought to the fore important discussions about the search for a balance between protecting national interests and maintaining global trade flows,” said Goncalves.

“We maintain a positive view of these changes. We are seeing a weakening of the left in many regions, which paves the way for economic policies that are more aligned with growth and competitiveness.”

MANAUS: UNRESOLVED
Since ICIS last interviewed Goncalves in 2023, he said nothing has improved regarding Brazilian chemicals companies’ complaints about imports entering the country via the Free Economic Zone of Manaus, in the northern state of Amazonas. The concerns are shared by production and distribution sides alike.

Manaus, the state’s capital, created a Free Zone in the 1960s to prop up development there, and taking advantage of the region’s waterways. However, many of the imports entering via Manaus are not directed to manufacturing in Amazonas itself but are just re-packaged and sold on.

In theory, the tax incentives resulting from the Free Zone would only apply to imports which are later transformed in the region to produce Brazilian goods, creating employment and income for the state coffers.

In practice, many of the imports are sent south to the industrial hubs of Sao Paulo, Rio Grande do Sul, or Rio de Janeiro, without paying the due taxes.

“The Manaus free trade zone represents an entrenched economic anomaly in Brazil, where decades of improper product imports have become normalized despite repeated political attempts at reform,” said Goncalves.

“Previous Federal governments’ attempts at reform were decisively blocked [the state of Amazonas has the exclusive right over the free zone], underscoring the zone’s significant political protection.

“With tax gains approaching 30%, the economic incentives for maintaining the status quo remain overwhelmingly strong, rendering meaningful reform seemingly impossible despite clear systemic irregularities.”

This interview took place at Activas’ offices in Sao Paulo last week.

Front page picture source: Activas’ facilities around Brazil
Picture source: Activas

Interview article by Jonathan Lopez