INSIGHT: Brazil’s consumers already hit by manufacturers’ tariff-induced higher costs – trade group

SAO PAULO (ICIS)–Brazil’s higher import tariffs for dozens of chemicals in place since October have already pushed up costs for industrial players, who are already passing those higher costs onto customers, according to the head at the trade group of industrial chemicals importers Associquim.

Rubens Medrano, president of the Brazilian Association of Distributors of Chemical and Petrochemical Products (Associquim), which represents companies employing around 7,000 people across Brazil, would not make a prediction about whether tariffs will be lowered again in October – when the current 12-month measure is due to expire.

But he did say manufacturing is feeling the pinch, adding that the international and domestic economic scenarios are worsening, and higher tariffs are not making life easier for the many companies in Brazil which import chemicals and petrochemicals – half of the large country’s demand for chemicals is covered by imports.

Brazil’s several changes to chemicals imports over the years, depending on who is in government and whose lobbying policymakers listen to the most, has become a recurrent saga, and one that is certain to provide a few more acts.

PRODUCERS GOT THEIR WAY ON TARIFFS – IS IT PAYING OFF?
The current situation was meant to benefit domestic producers – of which there are not many, with the market being controlled by a few large players, most prominently polymers producer Braskem, Latin America’s largest petrochemicals producer.

Higher tariffs, the narrative went, should encourage domestic purchases of chemicals, with the narrative quickly turning to protecting Brazilian jobs, one narrative the current government is very sensitive to.

But Brazil’s 220-million person market requires many more chemicals than it produces domestically, making imports indispensable for many manufacturing firms to operate. This has been a constant feature over the decades as producers never got to specialize but stayed in the commodity – and prone to be hit by global downturns – chemicals market.

In the current act in the tariffs saga, Braskem and its lobbying arm Abiquim have been the main characters, with their months-long lobbying paying off last year when tariffs were sharply increased.

Or, at least, that was the thinking when the measure was implemented. The reality is proving stickier though: Braskem’s poor financial results in the fourth quarter, meant to be the first one to show positive effects from tariffs, called that theory into question.

Unipar, the other large chemicals producer who lobbied via Abiquim for higher tariffs for the main chemicals it produces, is due to release its financial results later this week.

Unigel, embroiled in its own financial woes as it restructures its debt aiming to keep afloat, has not published financial results since 2023.

Associquim – and the trade group representing plastics transformers Abiplast – fell on the losing side of the last tariffs act. But as Abiplast’s president Jose Ricardo Roriz said in October, they will “continue to fight” to reverse the higher tariffs.

A Brazilian senator has also started a campaign against the tariffs, with heated words towards Braskem and what he considered the firm’s market dominance.

LET’S START 2025, THEN
One of Brazil’s funniest and probably truthful sayings goes: “The year only starts in truth after Carnival” – which this year fell very late, with the last Carnival events only taken place last weekend.

The economy does function in January and February, but at a slower pace. A summer pace: for most Brazilians, the saying is just part of the idiosyncrasy and responds to the sort of seasons: the summer is slightly hotter than other seasons. Kids are off school in January and those families who can afford it will holiday away.

Lobbyists are already gearing up for their work as the year starts. A key date for them will be the revision of the tariffs in October, so expect to hear from them more in coming months as they lobby to reverse course. This interview with Associquim being an example of it.

“Distributors do not import just for the sake of importing. We usually have the criterion that we import products that are not produced domestically. However, the increase in import tariffs, increasing input costs, ends up harming several end consumer companies,” said Associquim’s Medrano.

“I don’t think that’s the solution… The companies in our association are already paying more and passing this on to the consumer, of course. We don’t work with thermoplastics – we represent players in the industrial products category, and electrochemical distributors. Any increase in import costs will represent an increase in the final cost. The Brazilian consumer will be the one to pay for this.”

Medrano said Abiquim’s intense lobbying running up to October was healthy and legitimate action in a market democratic economy, where companies and their funded trade groups “try to show” to the government their side of the argument.

Medrano declined to comment on whether Braskem’s Q4 results indicated that the tariffs had not had the desired impact.

‘DIFFICULT TIMES’ GLOBALLY – AND LOCALLY
As 2025 is about to enter is second quarter, a common consensus is forming: the global economy and the largest economy in Latin America are showing signs of fatigue, with manufacturing especially feeling the heat.

The slowdown was taken for granted by most economists even without considering the US’ President Donald Trump proposed tariffs after storming into the White House in January.

Trump’s trade policies could hit Brazil in many fronts. Trump views steel as the true sign of industrial prowess, and his proposed tariffs on that product could directly hurt Brazil, which keeps a healthy steel production which makes it a net exporter, with more than 3.5 million tonnes/year sold to the US.

Another sector which could be hit is one of the country’s own success stories: ethanol, as Brazil overtakes the US as a global producer thanks to lower costs, hot weather, abundant water, and previous trade wars, which made the largest grain consumer China turn away from US farmers’ output.

Contributing to the doom and gloom, US credit rating agency Moody’s said in February the potential tariff-induced economic hit to Latin America’s economy would only be recouped by 2028, with lower output and lower employment on the cards.

However, the expected economic slowdown could play in favor of those who are lobbying for lower tariffs.

Despite the healthier-than-expected manufacturing performance in February, Brazil’s manufacturing has been on a slowing trend for months, and this does not play well with the music the government wants to sell to voters.

A fall in jobs in manufacturing could greatly harm President Luiz Inacio Lula da Silva’s Workers’ Party (PT) chances of re-election in 2026, as that constituency forms the backbone of the party’s electorate.

Amid yet another crisis in the many he has experienced, Associquim’s Medrano preferred to end on an optimistic note.

“The global petrochemical industry is in trouble. Let’s see where we are in October, but a decrease in tariffs could take place – it will all depend on how the Brazilian economy behaves in the coming months. If the economy grows, there will be a shortage of products, making imports important in addition to the usual supply and demand patterns,” said Medrano.

“Usually, at the beginning of the year, we see a replenishment of stocks as companies reduced their operations ahead of the summer break. This year, however, this replenishment of stocks has been lower and slower than normal.

“We are living in difficult times. Not only nationally, but internationally. Adding to that, international trade is very disrupted and could even be more disrupted in coming quarters. Things are not normal, or at least not the normal we became accustomed to in past decades.

“However, we have been through worse times and, for sure, we will get through them. I don’t want to be too pessimistic.”

Finally, a quick note to readers in Brazil: happy new year.

Front page picture: Port of Santos in Sao Paulo, Latin America’s largest
Source: Port of Santos Authority

Insight by Jonathan Lopez