Compared to global markets, the Brazilian petrochemicals industry is faring relatively well in terms of sales volumes, but product prices have fallen at a faster rate than the decline in feedstock costs up the supply chain and consequently margins are under considerable pressure. The Brazilian domestic petrochemicals market was showing signs of recovery by mid-2009 with the a return to growth forecast in Q4 as per a report by companiesandmarkets.com. However, long-standing issues regarding access to more competitively priced feedstock will need to be addressed if Brazil is to achieve its long-term goal of competing with Asian and Middle Eastern rivals on the global market.
According to Brazil’s chemical industry association Abiquim, Brazil’s chemicals product trade deficit fell 36.6% y-o-y to US$6.3bn in H109. Exports were up 15.9% y-o-y to 5.6 mln tons, but in terms of value they fell 18.7% to US$4.6 bln. Meanwhile, chemical imports fell 43.5% to 8.1 mln tons, valued at US$10.9bn (down 30.1%). Abiquim also reported a 21.5% contraction in the domestic market in H1-09. Operating rates averaged around 78% in H1-09 and reached 84% in Q2, which was an improvement on the 64% seen in January and 55% in December but just below the 85% level that is believed is necessary to ensure healthy margins. Abiquim stated that the index of production fell 3.9% y-o-y in H1-09 and would have been greater if it had not been for two major scheduled maintenance turnarounds in H108.
It is believed that restocking and a modest recovery in demand in both domestic and external markets should help lift capacity utilisation rates to 85-90% going through H2-09, returning to growth in Q409 – in part due to the base effect of the poor results in Q4-08 but also in the context of a slow recovery in demand. Thermoplastic resins may see a rise of around 5% y-o-y in H2-09, but the declines seen in H1 will weigh down the result for the whole year. As such, by end-2009, petrochemicals growth is expected to be around -5%, based on improvements in consumer confidence and a forecast 0.6% contraction of the economy.
The downturn is, however, leading to a revision of investment programs in South America with leading Brazilian petrochemicals producer Braskem’s joint venture (JV)’s with Venezuela’s Pequiven to be delayed by two years, although as plants – with total capacity of 1.3 mln tons per annum (tpa) ethylene and derivatives – will be based in Venezuela’s Anzoategui state and it will not affect our forecasts for Brazil. In an announcement in February, Dow Chemical has pushed back by one year its planned US$1 bln PE plant based on sugarcane-derived ethanol, with capacity of 350,000 tpa of LLDPE, to 2012. This is in line with the belief that construction projects that have yet to begin, or are just starting, may be delayed by 12-18 months, and as such does not change our forecasts. The planned US$8.5 bln refinery and petrochemicals complex in Rio de Janeiro is also not likely to come onstream until 2013, a year later than scheduled, with partners yet to decide on feedstock pricing and future demand.
Investment in the petrochemicals industry should see ethylene production capacity up 63% by 2013, compared with 2008 levels, fuelling growth in the polyolefins sector. Petrobras has committed itself to the US$9.8 bln Comperj complex, which includes a 1 mln tpa ethylene unit and downstream plants. The project is also set to raise ethylene capacity by 1.3 mln tpa by 2013. If the planned second phase of Comperj is completed in 2012, Brazil’s PE capacity should reach just under 3.10 mln tpa, while PP capacity should reach 3.45 mln tpa and PVC capacity 1.05 mln tpa. This would make Brazil self-sufficient in thermoplastic resins and giving it an exportable surplus of at least 3.5mn tpa. However, it is believed that the deterioration in global financial markets will delay the project by 6-12 months.
Over the medium term, it is believed Brazil will need to diversify feedstock sources away from naphtha, which could undermine its competitiveness. In spite of growing naphtha demand, which is expected to touch 14.6 mln tpa by 2010, naphtha production in Brazil is expected to drop to 10 mln tpa in 2010. The naphtha deficit is forecast to reach 3.4 mln tons by 2015.