How important is the petrochemical industry for Brazil?

The chemical industry is the third largest sector in the country, after food and oil. The industry recorded annual net sales of US$142 million in 2022, the sixth largest in the world. The industry is incredibly complex, embedded in Brazil’s manufacturing sector as a key supplier of raw materials, intermediates, and other products, as well as being a strong generator of high-level, qualified jobs.

How is the Brazilian petrochemical industry performing in 2023?

A global downward cycle began in July, and Brazil was not immune to it. July 2022 marked a perfect storm, with three major changes taking place: first, import rates started dropping significantly, severely impacting industry productivity. The industry was working at just 67% capacity in the first quarter of 2023. By comparison, in 2022, we had record imports valued at US$65 billion, which pushed the trade balance into a record deficit. Today, the chemical trade balance is at minus US$56 billion, an alarming figure. The decline in productivity and the record rise of imports are underscored by higher feedstock, energy, and fiscal costs. Currently, almost 80% of nitrogen fertilizers (derived from methane) consumed in the country are imported, while 100% of methanol needs are met by imports.

Could you elaborate on the competitiveness of Brazil’s fiscal framework?

With a 45% tax on revenue, Brazil’s fiscal requirements are more than double that of the US (20%). Last year, the government reduced the tax requirement for plastic resin imports from 11% to about 3%. This caused a rapid growth of 136% in plastic resins imports in the following months. The Brazilian industry are price takers, not price markers in the global market. The high prices of natural gas, which drive the high costs of propane, ethane and other basic products, leave us completely exposed and with little power to react, but ABIQUIM is working with the government to improve access to cheaper gas and defend ourselves against global volatility.

What opportunities could the development of the pre-salt reserves could open for the petrochemical industry?

Right now, the price of natural gas in the country is three to four times higher than in competitor countries. The exploration of the pre-salt layers could allow Brazil to develop new production chains, as well as additional energy sources, boosting the country’s competitiveness. The development of gas would create opportunities in ammonia and urea (which would significantly reduce the country’s vulnerability in agribusiness, for instance), but also methanol, hydrogen, methane-derived chemicals, as well as basic petrochemicals like ethane and propane. Moreover, gas, especially from the pre-salt layers, offers a transitional energy fuel with a lower carbon footprint than other fossil fuels. As demand for gasoline declines in the context of the energy transition, the supply of naphtha and propylene from gas could grow.

How does the Brazilian industry fare in terms of sustainability on a global scale?

The Brazilian chemical industry is among the cleanest in the world. Last year, consulting firm Whey Carbon conducted a study that measured the levels of GHG within the industry, with a focus on carbon dioxide, and found that the Brazilian chemical industry emits between 5% to 35% lower emissions compared to Europe, and between 15% and 51% compared to the US and Asia. But this is a double-edged sword: on one side, it shows a superior environmental standing, but, on the other side, our industry incurs higher costs, using more expensive energy sources. China, for instance, produces ammonia from coal, which is cheaper but much dirtier.

Our members have various initiatives toward sustainability. Solvay, for example, has the largest carbon capture project in Latin America, project Angela. This large-scale GHG reduction plant, located in Paulinia, has eliminated over 5 million t/y of CO2 equivalent (or 20% of the overall emissions of the Brazilian chemical industry).

What are ABIQUIM’s main priorities in the coming year?

Our priority is to devise robust sustainability and growth plans to successfully traverse the adverse market conditions and improve our competitiveness. Moving forward, we want to build a stronger commercial defence and become known as the world’s cleanest chemical industry. The Brazilian chemical industry is well-positioned for the energy transition, but we must continue to identify the best technological and fiscal mechanisms to grow our comparative advantage.