Brazil’s chems could gain edge by betting on renewable feedstocks – Bahiainveste CEO

SAO PAULO (ICIS)–Brazil’s petrochemical industry needs to implement a deep restructuring if it wants to regain global competitiveness, and it can do this by shifting to renewable raw materials and increased use of natural gas, according to the CEO of Bahia state public company Bahiainveste.

Paulo Guimaraes was appointed CEO of Bahiainveste and is tasked with attracting investment to Bahia state – home to Camacari, one of the country’s biggest chemical production hubs.

Bahiainveste, which was founded in 2015, falls under the umbrella of Bahia’s Secretariat for Economic Development, and functions as a public company with its own assets and revenues, as well as budgetary and financial autonomy.

Guimaraes spoke to ICIS on the sidelines of the annual summit of the chemicals trade group Abiquim earlier in December. Although the mood at the gathering was more positive than in 2023, Guimaraes said it was best not to be complacent despite recent successes for chemicals producers in Brazil.

The most significant of these has been higher import tariffs. In effect since October, they will help domestic producers increase market share.

However, Brazil’s lack of competitiveness in the sector run deeper, and it should address them immediately rather than rest on its laurels, Guimaraes added.

Although it may sound like an impossible task, Guimaraes said Brazil can and should compete against the US, the Middle East and China, who have sharply  increased their exports to Brazil during the last two years, hitting domestic producers’ market share.

RENEWABLE FEEDSTOCKS
To turn the situation around, Guimaraes said a chemical transformation is necessary for Bahia, where the sector has faced falling competitiveness and job losses over the past two decades due to outdated facilities and a lack of modernization.

“We need to look at the possibility of renewable raw materials. Within the next three years, Bahia will become an exporter of ethanol, so we will have the capacity to supply the industry with this type of raw material, for example,” said Guimaraes.

The executive highlighted how Brazil’s chemical industry has historically underinvested in technological innovation, focusing instead on basic petrochemicals.

This strategy has left the sector vulnerable to international competition, particularly from Asia, and in the case of ethanol this is telling, he noted.

“Brazil was the one who created ethanol as an automotive fuel in the late 1970s and early 1980s, but today we are producing ethanol using a technology imported from the US, because we did not understand that we needed to continue to develop the technology,” he said.

“This is a recurrent Brazilian feature, and we need to change it.”

DOMINANT PLAYER
Guimaraes went on to reflect on the dominance of polymers major Braskem, which emerged from a consolidation of several companies in the early 2000s and is in part owned by Petrobras, the state-owned energy major.

These factors have resulted in Braskem – Brazil and Latin America’s largest chemical company – to be key in shaping industry development.

The company’s virtual monopoly in basic petrochemicals has influenced investment patterns across the sector, said Guimaraes.

The US and Brazil are the Americas’ two largest chemicals producers. In the former, a significant shift occurred in 2004 when chemicals producers began utilizing shale gas, making natural gas-based chemistry more competitive than traditional crude oil-derived, naphtha-based processes.

Brazil failed to adapt its industrial strategy accordingly. Moreover, the Brazilian chemical sector’s challenges are further complicated by the country’s energy policies.

Following an energy crisis in 2001, the government implemented an emergency thermoelectric program that prioritized gas use for electricity generation over industrial applications.

“Natural gas began to rise in price because Petrobras began to see it as just another product that needed to be as profitable as oil. And it stopped being used as a lever for the country’s growth,” said Guimaraes.

DUMPING CONCERNS
Guimaraes said growing protectionist moves around the world will only increase further over the coming years as countries face significant concerns about dumping practices which have affected their manufacturing sectors, chemicals included.

Guimaraes said the tire industry was a good example.

“Today, the tires that are entering Brazil are entering at a price lower than the price of the raw material. And the raw material is a commodity,” he said.

He noted that domestic Brazilian tire production has fallen between 40-60%, and this occurred even though Brazilian manufacturers use 70% clean energy in their production processes, which in theory should have given them an edge in a world increasingly worried about climate change.

The threat of climate change could also give way to opportunities of a new, green industry. Looking ahead, Guimaraes said he can envisage significant opportunities in green hydrogen and sustainable aviation fuel (SAF) production in Brazil.

However, once again, he advocated for domestic value addition rather than raw material exports.

“Producing hydrogen and exporting hydrogen is like exporting water, wind and sun. Brazil should instead focus on manufacturing finished products using those resources. For instance, rather than exporting hydrogen and iron ore separately, we could produce green steel domestically instead,” said Guimaraes.

“We have the advantages of a country where renewable energy production is easy, and we have plenty of available land for non-food crops: we would be able to plant crops to produce chemical feedstocks without competing with food production.

“For example: I plant corn, and from the corn I produce ethanol and animal feed. What is the energy I use for this? CO2 or the biomass that the cattle generate. So, the animal feed would feed the cattle that would feed this energy.”

Front page picture: Bahia’s Camacari petrochemicals hub
Picture source: Camacari Town Hall (Camara Municipal de Camacari)

Interview article by Jonathan Lopez