Brazil’s polymers players unfazed by import tariff hike, producers upbeat

SAO PAULO (ICIS)–Brazilian petrochemicals sources have said the slight hike in polymers’ import tariffs will have little overall impact, although it is expected to help shore up margins for domestic producers.

Earlier in November, Brazil’s Chamber of Foreign Commerce (Gecex-Camex) decided to hike import tariffs on several polymers, partly reversing a decision adopted in 2022 by the previous government, which lowered the same rates.

Import tariffs were raised from 11.2% to 12.6% in widely used polymers such as high-density polyethylene (HDPE), low-density polyethylene (LDPE), linear low-density polyethylene (LLDPE), and polypropylene (PP) copolymers and homopolymers.

Outside the ethylene chain, tariffs will also increase to 12.6% for polymers polyvinyl chloride (PVC) and polystyrene (PS).

There are no tariffs for countries within the Mercosur trade bloc – which names Brazil, Argentina, Paraguay and Uruguay as members – while associate member Colombia is subject to a separate trade deal.

The largest and dominant player in Brazil’s polymers sector is Braskem, whose PE and PP chains will benefit from the hike in import tariffs. PS producers such as Unigel and Innova will also be at an advantage.

Over the course of 2023, Brazilian chemicals producers have lobbied the new Brazilian government in office since January to protect their market share against what the country’s chemicals trade group Abiquim has described as “imports at predatory prices”.

Global oversupply and a slower-than-expected recovery in China continue making Latin America the perfect market to absorb material as domestic production is well below the region’s needs.

In Brazil, according to figures from Abiquim cited by Camex in its resolution hiking the tariffs, nearly half of all demand is now being covered by imports, a situation that is greatly hurting the financials of domestics producers.

Braskem’s financial losses, for example, widened in the third quarter and the company does not expect a meaningful market recovery until 2025.

“The decision was taken to reverse negative impacts caused to the national industry due to the significant increase in imports and the strong price variation.,” said Camex in its resolution.

“The chemicals sector’s volume of imports over domestic demand grew 47% between January and August this year, compared to the same period last year.”

UNTAPPED POTENTIAL
Despite the increase in tariffs, a producing source said tariffs could go even higher because Asian polymers prices and competitive logistics costs still make imports into Brazil an attractive option.

“The hike in import tariffs is welcomed by producers, but I continue seeing Asian offers which are very competitive in the Brazilian market. We’ll continue working hard to convince policymakers to increase tariffs to the 14% they were at in the past,” said the source.

“This is needed to strengthen the national chemicals industry. Many producers have a nominal capacity greater than their actual output, which must be utilised.”

Brazil’s imports are coming from all corners of the globe. For PE, the largest number of imports is coming from the US.

For PP, Saudi Arabia, Colombia, Argentina, and China are the largest exporters to Brazil.

The hike in imports in November is the third protectionist policy towards chemicals taken by the Brazilian government this year. In April, it had already hiked import tariffs on certain polymers and rubber.

Earlier in November, a tax break for the sector that was withdrawn by the previous administration, known as REIQ, was reinstated.

DISTRIBUTORS PREPARE TO PAY MORE
While domestic Brazilian producers have cheered Camex’s decision to raise import tariffs, sources in the distribution sector – who are benefiting from abundant and cheap imports – were less jubilant.

They said the impact on their operations would be small in the short- and medium-term, although their margins are set to be reduced.

“The decision will help shore up Braskem’s market share, whose selling prices during December should be kept unchanged, helping the company improve its fourth-quarter results,” said a distribution source.

Meanwhile, a trading source said PE imports via the inland port of Manaus, in Brazil’s north, could increase even further now as it has an economic free zone and import tariffs are not applied to material coming through that port.

Brazil’s chemicals players – both in the production and the distribution sides – have urged Brazilian authorities to put more effort into controlling what imports enter via Manaus because some players would be practising unfair competition by misusing tax incentives.

“The entry of plastics into Brazil has been growing consistently and gaining space in the country. Many of these materials enter Manaus and unduly benefit from the tax incentive,” said Laercio Gonçalves, the CEO of large distributor Activas, in an interview with ICIS.

“Not only the distributors, but the entire petrochemical industry, suffers directly from unfair competition with the misuse of the tax benefits.”

Front page picture: The Port of Manaus, in Brazil’s state of Amazonas
Source: Port of Manaus

Focus article by Bruno Menini

Additional reporting by Jonathan Lopez