The costs of the Brazilian chemical industry, which were already under pressure from the Covid-19 pandemic, tend to rise further with the Russia-Ukraine war amid rising oil and natural gas prices, said Fátima Giovanna Coviello Ferreira, head of Economics and Statistics at the Brazilian Chemical Industry Association (Abiquim).

Naphtha, a petroleum product that is the main petrochemical raw material in the country, cost $772 per tonne in January, up 56% in one year in dollars terms. Compared to December, in reais, the appreciation was 8.7%. With the oil barrel above $110, a new increase will materialize in the coming months.

“It is a different scenario from 2014, when oil prices reached almost $120 a barrel and the exchange rate was at R$2 to the dollar. Today, the barrel is at $100 and the exchange rate is at R$5 to the dollar,” the executive said.

The Abiquim-FIPE price index saw a 0.56% decrease in January, compared to December, and jumped 51.2% compared to the same month in 2021, reflecting the appreciation of oil and its impact on the cost of naphtha.

The prevailing view in the industry is that there are still many uncertainties about the sanctions that will be imposed on Russia and how this will affect natural gas, which is used as raw material and energy in the sector. Prices in the local market were already under pressure from the increased demand for power generation. “We are very worried about this pressure that is coming from outside,” she said.

In a first moment, since there is idleness in certain segments of the local chemical industry, the difficulty in accessing products abroad may encourage domestic purchases and raise the occupation rate.

In January, with some improvement in production rates and domestic sales of chemicals for industrial use, the use of installed capacity in Brazilian industry reached 82%, the best rate since October 2018 and the highest for the first month of the year in last four years. Still, the index is low for continuous production and capital intensive activity.

“This instability could help the local industry to produce more, but with no effect on products such as fertilizers and methanol [which have ceased to be produced locally in recent years],” she said.

The sector monitors with concern the supply of fertilizers and intermediates in the international market, since Brazil is heavily dependent on imports. Although the country has different suppliers, Russia is the main trading partner in this group.

Abiquim’s head says that the risk faced by Brazil at the moment – of shortage of input for agribusiness, a strategic sector – should open new discussions about the use of gas in Brazil. Last year, the country reinjected more gas than it imported. “It is a noble resource that could have other applications,” she said.

In the view of the industry, which recently lost an important tax break in the petrochemical chain, the Special Regime for the Chemical Industry (Reiq), Brazil lacks a state policy that prevents further decline of manufacturing, already seen in the chemicals industry – the country stopped producing fertilizers and methanol, for example, because the local product was not competitive.

Source: Valor International

https://valorinternational.globo.com