New Market Research Report: Brazil Petrochemicals Report Q2 2016

From: Fast Market Research, Inc.
Published: Sun Mar 13 2016

The Brazilian petrochemicals industry will only just offset the expected contraction in the domestic market with export growth, supported by lower naphtha feedstock prices and a weak currency. While export growth helped limit the effects of a deteriorating domestic market in 2015, there is uncertainty over the strength of any long-term recovery.

The industry's domestic petrochemicals sales shrank 5.4% in 2015 with national demand for chemical products for industrial use falling 6.8%, according to the Brazilian Chemical Industry Association (Abiquim). The deceleration of domestic activity and the real devaluation affected the volume of imports, which fell 21.6%. This enabled local producers to raise their domestic market share by 5.4 percentage points even as the market shrank.

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Year on year, Brazilian demand for resins (PE, PP and PVC) was approximately 4.9mn tonnes, down 7.6% from 2014. However, local resins producers' domestic market share was one percentage point higher with resins sales of 3.4mn tonnes, a decrease of 6% in comparison to 2014 but lower than the market's contraction.

In terms of end markets, the domestic market will contract. We remain bearish on the country's vehicle production outlook in 2016 as domestic sales prospects remain weak and worker dissatisfaction over working hours, pay and lay-offs leads to further industrial disputes and production cutbacks. As a major petrochemicals consumer, through the use of polymers and rubber in fittings and trimmings, the industry's decline is a major loss for the petrochemicals market. Brazil's construction sector will remain in recession in 2016, which will negatively impact on construction-related polymers, particularly PVC.

The multiple challenges facing the industry limit its ability to leverage BMI projects just a 0.8% recovery in production volumes in 2016, but this will be boosted by sustained strong margins as a result of low naphtha feedstock prices. The modest growth rate will be largely led by exports and there are a number of downside risks that could prompt another year of contraction.

Investment is likely to be negatively affected by a 50% reduction in the Special Chemical Industry Scheme, which gives tax incentives for raw materials purchases, in 2016 prior to its abolition in 2017. At the same time, the industry is facing an already high tax burden, with the possibility of additional taxes on financial transactions. On top of this, the costs of inputs are rising with electricity costs soaring 30-40%, while locally produced gas discounts are being removed, raising gas costs by over 20%.

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