Chemical Industry Deficit Doubled in 10 Years, Reaching US$ 12.7 Billion In 2022

indústria química

“…local production remained stagnant in the last 10 years and with idle capacity close to 30%, triggering an imminent risk of deindustrialization.”

André Passos Cordeiro is the CEO of the Brazilian Chemical Industry Association – Abiquim, he was institutional relations executive at Innova S.A, municipal budget secretary of Porto Alegre City Hall and director of the Sanitation Company of the State of Rio Grande do Sul.

Cordeiro holds a degree in economics and is a MSc in political science from the Federal University of Rio Grande do Sul.

André Passos Cordeiro, CEO of Abiquim

AgriBrasilis – What is the Special Regime for the Chemical Industry – REIQ? What can the end of REIQ represent for the country?

André Cordeiro – It’s a resource created in 2013 to reduce the cost disparity between the local and international industry: the billing tax in Brazil is 40% to 45%, while competitors in the US and Europe only pay 20% to 25%. There is also the issue of Brazilian raw material, such as natural gas, that costs three times more than in other countries.

REIQ was suspended between April and December 2022. On December 15, 2022, the National Congress overturned ‘veto 32’, that revoked the maintenance of the REIQ until 2027. The special regime was already included in the law sanctioned by the result of the approval of conversion project of Provisional Measure No. 1.095/2021. Both were approved in the House and Senate, in collective agreements with party leaders. The veto went against the extensive debate that had already taken place.

Fortunately, Congress understood the importance of overthrowing the veto, avoiding the negative impacts that would be generated in the chemical industry, throughout the production chain and society in general.

With the end of the veto, the article that grants, from 2024, 1.5% more presumed credit for those who invest in increased production capacity will be valid again, stimulating investments, including for the production of fertilizers.

It is important to emphasize what the end of the REIQ and the return of the full rates would represent: 85,000 jobs would be at risk, along with a reduction of US$ 1.1 billion in the Brazilian GDP. Brazil’s competitive capacity would become more fragile, creating an environment of extreme legal uncertainty.

AgriBrasilis – The trade balance deficit for chemical products reached a US$ 12.7 billion record in 2022. What motivated this result? What are the consequences?

André Cordeiro – 2022 was not easy for Brazil and the world economy. We started the year still trying to recover from the pandemic, and we were harmed by the conflict between Russia and Ukraine and by all the impacts of this crisis on the world economy, culminating in what is now called the first global natural gas crisis.

Brazilian chemical industry was greatly affected, being dependent on raw materials and energy, especially gas. The crisis had an impact on the dynamics of prices in the international market, culminating in records in production costs, logistics, revenues, imports, and also in deficit, that strongly pressured the sector.

When considering all segments that make up the chemical industry, net sales reached US$ 187 billion in 2022. However, in 2022 Brazil recorded the largest deficit in the history of the sector, reaching US$ 64.8 billion. In ten years, the deficit of the chemical industry more than doubled in size, because of increased operational costs associated with doing business in Brazil (“Brazil Cost”) and consequent lack of internal competitiveness.

The share of imported products on the local market reached almost 50% in 2022, while local production remained stagnant in the last 10 years and with idle capacity close to 30%, triggering an imminent risk of deindustrialization.

AgriBrasilis – What has changed for the national chemical industry after the recent crisis in global supply chains?

André Cordeiro – The scenario that the chemical industry is going through, in fact, has only intensified with the latest world events. The sector showed its competence, resilience and professionalism in facing adversities coming from abroad.

The Brazilian chemical industry is the 6th largest in the world, generates 2 million direct and indirect jobs and represents 11% of the industrial GDP. It is the 3rd largest industrial sector by GDP, with net sales of US$ 187 billion. Leader in renewable chemistry, it is also the first sector in federal tax collection (13.1% of the industry’s total), around US$ 5.8 billion.

These numbers show the opportunity that the Brazilian chemical industry has to grow. Reducing the trade deficit involves increasing competitiveness and local production, targeting the domestic market and exports. There is enormous competitive potential, that can be taken advantage of by building an appropriate and legally secure business environment, reducing the “Brazil Cost”, fighting unfair competition with a good trade defense system, defining a competitive tax burden, making energy and raw materials at competitive prices and, especially, accelerating the energy transition process, the use of renewable raw materials and the circular economy.

Brazil has comparative advantages that can favor the local production of chemicals: significant reserves of natural gas, many of which are already in production, and large sources of energy and renewable raw materials are examples. The Brazilian chemical industry is made up of a combination of large national groups, multinational companies with a long tradition in the country, and more than 800 small and medium-sized entrepreneurs. If appropriate measures were adopted to encourage investment, Brazil could have one of the strongest, most vibrant and sustainable chemical industries in the world in the coming years. The recreation of an important dialogue channel between industry and government, the Ministry of Development, Industry, Commerce and Services, for example, already signals an excellent perspective.

AgriBrasilis – What is the role of Abiquim in the agrochemical sector in general?

André Cordeiro – Within the scope of Abiquim’s operations, the highlights are agricultural pesticides and intermediaries for fertilizers. These segments are fundamental and strategic for the development of the national agricultural sector. We are vulnerable and dependent on pesticides and intermediaries for imported fertilizers.

Reducing reliance on imports is a priority. We are supporting the implementation of the Fertilizer Industry Development Program – Profert, that should attract investments in the area of intermediates for fertilizers. To this end, it is essential that a public policy be implemented aimed at solving our lack of competitiveness in natural gas.

With regard to agricultural pesticides, we need to encourage the production of higher value-added products in the country, with a high level of R&D and technology.

Brazil already had a greater share in the production of pesticides, but this production did not keep up with the updates and developments of more modern products. We need to change this reality. One of our goals is to increase investments in research and development on the sector’s revenue. This index is currently around 0.7%, but Brazil can double this indicator.

AgriBrasilis – You said that Brazil has the potential for new nitrogen production plants with a capacity of 2 million tonnes each. What are the steps for these plants to be installed and why are they important?

André Cordeiro – I would not say steps, but measures identified by the sector and already taken to the federal government in early 2023.

We presented to the Vice President of the Republic and Minister of Development, Industry, Commerce and Services, Geraldo Alckmin, to Minister Alexandre Silveira, of Mines and Energy and to Minister Fernando Haddad, of Finance, the strategic agenda for the chemical industry and general data on the sector, emphasizing sensitive points.

We highlight the lack of a structured support program for the chemical industry, aligned with a reindustrialization proposal, similar to what several countries around the world are doing. Inflation Reduction Act, Jobs Act and the Shale Gas program are examples of the US mobilizing billions of dollars. The European Union also has its plans and programs to support the transition, in addition to China, Japan, India and Korea.

Nitrogen production plants are important because they have a multiplier effect on the economy. They represent job creation and salary increase, tax collection, trade balance, multiplication in related chains. Currently, almost 80% of nitrogen fertilizers consumed in Brazil are imported.

AgriBrasilis – What can we expect from Petrobras’ new board?

André Cordeiro – The choice of Senator Jean Paul Prates is an important positive sign from the new government regarding the prospects for strengthening the Brazilian chemical industry.

Prates was present during an event held by ABIQUIM, the Annual Meeting of the Chemical Industry (ENAIQ), on December 12, 2022, when he stated: “Prejudices against the national industry will have to be left behind. We want it to increase its share on the GDP.”

With a deep knowledge of the petrochemical sector, Prates has maintained dialogue with the chemical sector over the last few years, and has acted for the maintenance of the REIQ in the National Congress.

At ENAIQ, he reinforced his view on the importance of using pre-salt gas as a raw material, so that more wealth and jobs are generated in line with the energy transition scenario, ESG and achievement of the Sustainable Development Goals. Regarding the role of the government, he declared that there will be no prejudice against intelligent and moderate cooperation between industry and the State.



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