Brazil’s chemicals importers mobilize against tariffs hike proposed by producers

SAO PAULO (ICIS)–Brazil’s importers of chemicals are lobbying the cabinet not to implement the hikes to import tariffs proposed by the country’s producers, represented by trade group Abiquim.

Brazil’s Chamber of Foreign Commerce (Camex), a body under the government’s umbrella, concluded on 30 April a public consultation about import tariffs on chemicals. In it, Abiquim presented more than 60 proposals to hike import tariffs, while individual companies presented dozens more.

In total, the proposals contemplate hikes in import tariffs in more than 100 products, most of them to be raised from 12.6% to 20%. Some proposals, however, aim to raise some import tariffs from 9% to 35%.

A decision by Camex is expected in coming weeks.

IMPORTERS MOBILIZE
A key actor lobbying against the tariff hikes is Brazil’s plastics transformers trade group Abiplast, who benefit from imports into the country.

Abiquim often describes those imports as coming into Brazil at “depredatory prices” which are putting some national production chains at risk due to unfair competition.

China’s overcapacities continue casting a shadow in the global chemical industry, and Latin America’s historical trade deficit in the sector makes the region the perfect ground for Chinese producers to send their product, at times below costs of production.

On the other hand, Abiplast and consumer groups have said a hike in import tariffs would only increase prices for consumers and industrial players alike and would only benefit Brazil’s chemicals producers.

“There should be no increase in import tariffs as this is not a viable solution at this moment, nor at any time in the future. An increase would result in direct increases in prices in the Brazilian market,” said to ICIS a spokesperson for the trade group.

Earlier in May, sources in Brazil’s chemicals sector said to ICIS it would be unwise to hike import tariffs right now, as the country reels from severe flooding in Rio Grande do Sul, which has a strong plastics sector, and when more imports may be needed.

The floods have brought the state’s industrial fabric to a standstill, although the petrochemicals hub of Triunfo, near Porto Alegre, restarted in mid-May albeit at a slow pace as infrastructure in the state is still heavily disrupted.

Abiquim, however, remains unrelentless in its request for fast action, arguing that the restart at Triunfo, with Brazil’s polymers major Braskem leading the way, will be enough to guarantee supply, without the need for more imports.

Braskem has a commanding voice in Abiquim.

“We don’t agree [with any pause in the hike, if finally approved, because of the floods’ effect]. Braskem resumed operations last week and, furthermore, the high level of predatory imports [in past months] mean that resin producing companies had sufficient stocks to supply the market,” said to ICIS a spokesperson at the trade group.

Abiquim is hopeful it will gain the day. His lobbying to the government has gone as high as President Luiz Inacio Lula da Silva, with whom the trade group and a few chemicals producers met last week in Brasilia to make their case for the import tariffs hike.

Lula’s center-left cabinet has been since the start more friendly towards chemicals producers than his predecessor Jair Bolsonaro, who favored a more free-market line.

In 2023, the cabinet hiked import tariffs for several polymers twice, and reintroduced a tax break for chemicals called REIQ.

Lula’s Workers’ Party (PT) main constituency is industrial workers, to whom the President promised during the electoral campaign to create more and better paid industrial jobs. Propping up domestic chemicals production would fall within that line of action.

However, after Lula’s meeting with Abiquim, the backlash followed. According to a report by Brazilian daily Valor, Abiplast and 15 other trade groups have requested their own meeting with the President, hoping to stop the proposed increases in import tariffs.

Among others, the groups opposing the hike include those representing sectors such as personal care, cleaning products, rubber articles, non-woven fabrics, paints, mattresses, toys, electronics, pharmaceutical products, food, polyolefin fibers, fabrics and clothing, footwear and civil construction.

The groups said they were aiming to show to the President the “importance of tariff balance in maintaining industrial activities” in Brazil.

BIG (AND CLOSED) CHEMICALS SECTOR
Brazil’s chemicals demand has always surpassed domestic supply, and around half of the country’s needs are covered by imports.

That has been the case in the past few years. What has made the past year extraordinary is China dumping its product in Latin America, depressing prices – and margins for local producers.

The fact that a 215-million market such as Brazil has not developed a bigger chemicals industry is surprising. Moreover, the country produces mostly commodity chemicals, which are to suffer from global downturns more than the higher-margin specialized grades.

A source at Brazil’s chemicals industry, who deals with Braskem on a regular basis, was not impressed with Abiquim or Braskem’s strong stance in favor of higher tariffs.

The source said it preferred to remain anonymous because “creating animosity by going against” the company’s position could put its business relationship at risk.

“This [request for higher tariffs] is the cry of business mediocrity, which sees import restrictions as the solution to its productivity and technology problems. A country must not be built on protectionism but on investment in technology, productive capacity, creativity, and scale,” said the source.

“Brazil’s political class has never prioritized competition as a source of development. Businessmen want to be alone in their businesses and the Federal Government wants to keep only Petrobras [in the crude oil sector] as a form of political financing.”

Petrobras is the state-owned energy major, which holds a commanding position in the market despite other foreign players having some licenses to explore for and produce crude oil.

The source added that when import tariffs are hiked generally, for all foreign potential exporters to Brazil, that is very different to potential anti-dumping duties (ADDs) imposed against a certain country – in this case, potentially China.

“If the request was about ADDs on China’s product, this would be reasonable. But Abiquim and Braskem’s request for hikes in import tariffs will affect all imports and this is not correct … We need more competition, not less. With more competition, some companies would have to close their doors indeed,” it said.

“Other companies, however, those which are more efficient, intelligent and audacious, would grow. Competition is always good and bringing foreign companies to compete in the local market would be interesting. Whenever and invariably private companies need the government to survive, there is a decrease in productivity and investments in new technologies.”

However, the government’s ears are so open to chemicals producers’ demands that, on top of two import tariffs hikes in 2023 and the reintroduction of REIQ, earlier this year the cabinet announced the imposition of ADDs on US’ polypropylene (PP).

The measure was taken even though US PP imports into Brazil only represented 5% of the total in 2023 – 26,000 tonnes out of nearly 510,000 tonnes.

Braskem is Brazil’s sole producer of PP as well as polyethylene (PE), the two mostly widely used polymers.

A second source in the Brazilian chemicals distribution sector said the import tariff hikes could benefit all parts of the chain – apart from producers, distributors and transformers as well – but only if all players rise prices in line with the increase in the import tariffs.

“If the tariffs are finally hiked, it could represent a problem for us at first if Braskem lowers its prices, for instance – my product acquired pre-import tariff hike would be more expensive and I would have difficulty placing it in the market,” said the distribution source.

“If Braskem does not lower its prices immediately, I would be able to maintain my prices. But if prices drop, I would be facing higher costs and lower selling prices: my margins would be greatly squeezed.”

Focus article by Jonathan Lopez

Additional reporting by Bruno Menini