What have been the standout milestones achieved by Elekeiroz in the last 12 months?

The chemical industry as a whole has been going through a remarkable time, achieving year on year growth of 33%. The last quarter of 2021 in particular was terrific for Elekeiroz, and we carried this momentum into the first quarter of 2022. There are still challenges, such as a commercial balance deficit and foreign competition, in addition to ongoing global supply chain, freight and logistics disruptions. However, these disruptions have helped the domestic producers like Elekeiroz become more competitive.

Demand was expected to fall in Q2 2022 due to inflation, but we have not registered that decline yet. Elekeiroz is still forging ahead with strategic plans, including the recently completed acquisition of Nexoleum, a soybean oil startup.

Elekeiroz has two main product lines which have both performed well – our organic range, which is mostly fossil raw material based but also has renewables coming from soybean oil, and our inorganic line, which serves several segments like agricultural, chemical, etc. The inorganic sector, led by the 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.

Can you comment on the rumour that private equity H.I.G intends to sell Elekeiroz, and what this could mean for the company moving forward?

A private equity firm’s business is buying and selling companies, and in the current market we are seeing a lot of deals happening and large companies changing hands, such as the Indorama-Oxiteno deal. Three years ago our ownership changed hands, and we expect the boom our industry has experienced to stimulate more M&A or transactions between private equity shareholders in the future.

As Elekeiroz is a well-established company, a new owner would not necessarily mean a major shift in business operation or overall strategy.

What would you say have been the biggest challenges faced by Brazil’s chemical sector recently?

The world has been facing the impact of inflation recently, but this is not a new phenomenon for Brazil. The Brazilian Central Bank saw what was happening in Europe and was able to anticipate and react beforehand. However, the effects of inflation are acutely felt by the everyday worker, which will lead to decreased consumption.

The next biggest challenge has been judicial stability, particularly under the highly polarized political climate in the country. The current government has made some interesting reforms, but more fiscal and judicial reforms are necessary. As an example, first and second generation chemical industry businesses had access to an incentive called the REIQ (Special Chemical Industry Regime) that was canceled by the current administration. Starting next year this fiscal incentive will no longer exist. The policy was created to put the local chemical industry on an equal playing field with our counterparts in Europe and the US, and losing this incentive will damage competitiveness. The industry is working on lobbying efforts on all levels to be able to safeguard the interests of the market.

Now Brazil’s new gas law (New Gas Market) has been implemented, what changes have you noticed?

Although the new gas market is a positive step, we have experienced challenges and obstacles at every phase with these new regulations. Petrobras is still the dominant player in the market and is also able to readily import supply when necessary. Moreover, the energy crisis in Europe and war in Ukraine has made the transition difficult due to the rise in prices. The first tangible steps towards the new gas market have been taken but currently the biggest beneficiaries are the gas concession holders. We have contracts with regional suppliers buying on the new gas market but our contract prices are based on Petrobras and where Brent is trading. There is also a debate happening around the quality of this gas, but this still has to be looked into.