Political ramifications in Latin America’s biggest market
Image courtesy of Port of Santos
2022 in Brazil has been dominated by arguably the most polarizing election in the nation’s history, pitting incumbent right-wing populist Jair Bolsonaro’s Liberal Party (PL) against left-wing Luiz Inácio Lula da Silva’s Workers Party (PT). The disparaging ideologies of the two candidates also mirrors the Latin American trend away from the political center, with populations looking for something different than the status quo. However, in the case of Latam’s biggest economy, despite the views each candidate stirs up in their supporters and detractors, neither is likely to dramatically change Brazil’s economic model, and business opportunities will remain for a country with such considerable resources.
For instance, while corruption and a failure to invest in infrastructure under the previous Lula administration was an opportunity lost for Brazil during a time of growth, the decision to continue Fernando Henrique Cardoso’s (the president who preceded Lula’s first term) broad economic strategy reaped dividends for the country, making a mockery of suggestions that PT will lead Brazil into any form of communism.
On the other hand, although supposedly a business-friendly government, not all of the changes implemented under the Bolsonaro regime have helped the chemical sector. For example, in May 2022 Brazil’s chamber of deputies voted to end the REIQ (Special Regime for the Chemical Industry), a tax incentive created in 2013 which had allowed a reduction on the purchase of certain petrochemical raw materials. According to a study by Brazilian university FGV, the end of the REIQ is expected to cause losses to Brazil’s chemical sector of R$11.5 billion in revenue and R$5.7 billion in added value, damaging competitiveness and creating an increased reliance on imports.
Another factor damaging the competitiveness of Brazil’s large chemical sector is the cost of natural gas, which André Cordeiro, CEO of ABIQUIM, revealed is about three to four times higher than in countries with which the chemical industry competes. However, the country has the potential to produce a wide range of energy including gas, firstly by reducing the monopoly of state-giant Petrobras through the ‘New Gas Market’ regulations which were implemented in 2021, and secondly through the development of its vast array of natural resources, most notably the pre-salt reserves.
Cordeiro gave an illustration of the degree of potential competitiveness increase. “According to data from ABIQUIM, every 22 to 25 million m³/day of rich pre-salt gas can make investments in the order of US$6 billion in a global scale cracker viable, with a multiplier effect on the economy, considering job creation and salary increases, tax collection, trade balance, multiplication in related chains, etc.,” he said, adding that this would generate a virtuous cycle, resulting in new investments and increased production.
From a renewable energy standpoint, Brazil already has one of the cleanest energy matrices in the world and is well positioned to capitalize on its hydroelectric potential, the production and use of ethanol, and the availability of biogas and biomethane, in addition to favorable conditions for wind and solar energy.
Balancing the old with the new
Each of the Brazilian petrochemical and chemical producers interviewed for this report were keen to showcase their range of sustainable, green products. For instance, when discussing Braskem’s evolution since its creation 20 years ago, Edison Terra, VP olefins and polyolefins – South America, pointed to the launch of green polyethylene in 2010, producing ethylene from dehydrating sugarcane ethanol. “We have the target to reach 1 million tons of green ethylene and polyethylene by 2030,” he added.
João Parolin, CEO of Indorama Ventures Limited’s (IVL) oxides and derivatives (IOD) division for South America, explained how customer demand is stimulating R&D for greener products. He gave the examples of the detergents industry developing concentrated products to save on packaging and transportation to lower their scope three emissions, the paints and coatings industry moving more towards water-based solutions and products that have less hazardous air pollutants, and IVL’s surfactants and solvents for crop protection that can be mixed into different solutions that are safer for farmers and the environment. In collaboration with customers, we have developed products that help produce concentrates which use less water, less packaging, and have a lower carbon footprint,” said Parolin.
Since the acquisition of Oxiteno by IVL closed on March 31st 2022, the company is now the largest producer of ethylene oxide in the Americas, revealed Parolin, who affirmed IVL’s commitment to the science-based targets initiative (SBTi), which encompasses topics such as circular feedstock and carbon offsetting.
Elder Martini, CEO of Elekeiroz, mentioned that the company has identified renewable products based on soybean oil as a growth area, and highlighted the acquisition of Nexoleum, a soybean oil startup, as an example of this strategy. However, Martini’s next comment was a reminder that the bulk of the chemical market remains inorganic: “That being said, the inorganic sector led by our agricultural sector has been performing the best due to the global supply chain shock in the fertilizer space. This has accounted for about half of our revenue and continues to grow at a steady pace.”
The fact that ‘traditional’ chemical products still account for the majority of global sales is important not to lose sight of, not only because these sales will fund ventures into greener products, but also due to the role chemicals and petrochemicals play in our day to day lives, from increasing food production to feed a growing population, to packaging that ensures produce lasts longer.
This was a point alluded to by Fabiano Bianchi dos Santos, executive director of Petrom Petroquímica Mogi das Cruzes S.A. (Petrom), the largest producer of phthalic anhydride in Latin America. Bianchi spoke of Petrom’s strategy to evolve sustainably from a business standpoint, in small steps, producing materials that are valued by customers and final consumers. He elaborated: “We are already at a place where some customers are asking for more sustainable materials, but transitioning to a place where everything is green could take some time. In our industry it is important to give options to final users, and in time consumers will start to understand the importance of green products.”
Bianchi went on to describe the market for bio-based plasticizers, for which Petrom has the technology to use alcohols from green sources and soybean oil to make 100% green plasticizers: “There is a niche of customers that value this and use the bio-based products in their formulations of compounds and films, and this is an area of the business we see as having strong growth potential.”
A sustainable supply chain
The service providers in Brazil’s chemical supply chain are also advancing sustainable initiatives aligned with their clients in the petrochemical and chemical space. Ultracargo, part of the diversified Ultra group of companies, is the largest port terminal operator in Brazil with a footprint of 955,000 cubic meters spread across six ports along the coast, including their biggest facility at the Port of Santos.
Décio Amaral, Ultracargo’s president, explained how the company has invested in reducing its fresh water use and in rain water capture solutions, including developing a method to reduce water consumption by more than 90% and eliminating waste when cleaning storage tanks. “Previously it was a process that carried some risk related to working at heights, we had by-products that had to be disposed and a lot of water was used in the cleaning process,” he said, elaborating that innovation from Ultracargo’s facility management staff reduced water use for tank cleaning from about 1,000 liters (L) to 80 L, and now only requires two people to operate. “Furthermore, the waste water produced is more treatable. Through education and showing your staff the importance of sustainability, a virtuous cycle is established where increased efficiency leads to an increase in productivity and profitability.”
Ultracargo is expanding its tanking facility in Aratu in Bahia in response to increased petrochemical activities in the region, according to Amaral, who underlined the company’s mission to provide solutions that reduce logistics costs, turnaround times and bureaucracy.