Brazilian petrochemical industry calls for government support

Wednesday, November 27, 2013

The Brazilian petrochemical industry has called for the federal government to cut the price of natural gas and provide incentives for new investment, to support a sector that has become increasingly uncompetitive in recent years.

At a seminar in the Brazilian congress, Pedro Freitas, director of strategic planning at Braskem (NYSE: BAK), Brazil's largest petrochemical company, said that because of the emergence of shale gas in the US, the price of petrochemical feedstock in the US has decreased by US$300/t since 2007, while it has increased by US$300/t in Brazil.

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Freitas said that 80% of Braskem's feedstock is naphtha, which has become much more expensive than feedstock derived from natural gas, which supplies only 16% of Braskem's feedstock. Around 75% of the cost of Braskem's cost of production is derived from feedstock purchases, Freitas said.

"Raw material is critical for the petrochemical industry to grow in Brazil," he said. "There is no country with a strong industry without a strong chemical industry."

Henri Slezynger, president of Brazilian chemical industry association Abiquim, said that "it is essential to take measures immediately to reactivate the industry...the American threat is obvious."

"A large part of the increase in internal demand for chemical products in Brazil is now systematically met by imports," he said. Abiquim forecasts that Brazil will post a trade deficit of around US$32bn in chemicals this year.

Representatives of the Brazilian petrochemical industry at the seminar called for the Brazilian government to cut the price of natural gas in Brazil from its current level of around US$12/MBTU to US$5/MBTU, closer to US levels of US$3.50/MBTU.

Slezynger said Brazil needs a more internationally competitive gas price, to prevent further shutdowns in capacity.

"Brazil has a major opportunity to be competitive with its onshore and offshore gas, but it needs government policy to price gas closer to the US level."

The commercialization of Brazil's recent offshore gas discoveries is only likely to begin around 2020, speakers said, providing Brazil with more raw materials for its petrochemical industry.

Pedro Wongtschowski, the former chief executive officer of Brazilian fuels and chemicals conglomerate Ultrapar (NYSE: UGP), said that investments in new petrochemical capacity take four to six years, so the government needs to act now to incentivize the sector. Wongtschowski is currently chairman of Embrappi, the government's industrial innovation company.