New market study, "Brazil Petrochemicals Report Q4 2013", has been published

Brazilian chemicals producers are suffering from a sustained surge in imports. While a better business environment due to supportive government measures should help increase efficiency and stimulate consumption, BMI still forecasts an erosion of market share to cheaper imports, particularly from the US due to the reduction in import tariffs on polyethylene and the US's lower feedstock ethane costs.

For H113 as a whole, the Brazilian chemicals industry increased production by 1.81% year-on-year (y-o-y), boosted by strong results in June. Domestic sales rose by 2.58% in the same period with June sales up 6.9% m-o-m. Overall, Brazil's demand for chemical products was up 8.8% y-o-y in H113, indicating that domestic producers were failing to keep up with the domestic market and losing sales share to imports.

Supporting evidence that domestic producers are losing out in the competitiveness states, Abiquim noted that imports remained strong, up 25.8% in H113 compared to the same period last year. There was a 35.9% rise in imports of intermediate products for fertilizers, with urea imports up 60.9%; a 22.3% rise in imports of basic petrochemicals, with methanol imports up 20.6%; and also a 25.3% rise in imports of thermoplastic resins, with a 31.4% rise in imports of polyethylene.

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Apparent consumption of thermoplastic resins in the domestic market reached 1.4mn tonnes in Q213 bringing the total for H113 to 2.7mn tonnes, representing growth of 10% and 15% y-o-y, respectively. Three factors contributed to this result: the restocking trend in the chain, the strong inflow of imported resins benefitting from tax incentives before the end of the so-called port wars, and stronger performance in the agribusiness, automotive and infrastructural sectors. Braskem also increased its domestic sales to 947,000 tons in Q213, up 19% y-o-y.

Key views in the sector include:

* Petrochemical capacity utilisation rose to 94% in Q213, the highest rate since Q309, and is likely to exceed 90% for 2013 as a while. The continued recovery is being bolstered by reductions in taxes on raw material purchases and operational efficiency improvements which should, over coming quarters, helping to stem the surge in imports.
* BMI believes that polymer buyers will slow purchases in Q313 ahead of new lower tariffs that were set to come into effect on October 1. The Ministry of Finance announced that the government will not renew an import tariff increase on 100 products, including HDPE, LDPE and LLDPE. The government decision stemmed from the high dollar exchange rate compared with the Brazilian currency. Under the government's new decision, the tariff for PE will return to its previous level of 14%. As a result, the Brazilian market was set to slow temporarily. The lower import prices should be disinflationary and help manufacturers by lowering their input costs, but risk increasing the flow of imports from Q413.

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